Ahead of the meeting, the BOJ already collected some opinions from bond market players as noted here. So, this is mainly to share that as a starting point for discussions today and tomorrow. Here are some things to note.
On the size of reduction of bond purchases, the BOJ questioned whether purchases should be reduced to zero, or to ¥2-3 trillion per month, or continue at about ¥4 trillion per month. Some of the responses were that:
- Comparing with overseas central banks, a reduction of ¥2-3 trillion is desired
- Bond purchases should ultimately serve as a monetary adjustment tool, indicating a zero purchase amount is crucial
- A gradual reduction aiming for ¥1-2 trillion would be ideal
- Considering the principles of IRRBB, a reduction of ¥4 trillion should be appropriate keeping in mind the limited flexibility in domestic bond operations
- BOJ should aim for a reduction to about ¥5 trillion and if the situation with the bond market stabilises, then additional reductions should be considered
As for the pace of reduction in purchases, the BOJ questioned whether the tapering process should be a quick one, or fast-paced initially before moving to a more gradual pace, or just a gradual move over a period of about two years. Some of the responses were that:
- Gradual reduction of bond purchases are unnecessary given current monetary situation
- After an initial signification reduction is announced at first, then BOJ should move to a more gradual and cautious pace of reductions in order to restrain the formation of negative perceptions of monetary policy
- A gradual reduction is less impactful and will help to avoid any unwanted market disruption
- To avoid any unnecessary volatility in the market, it is prudent to implement reductions gradually over two years
The full piece can be found here.
