Yen slumps as Bank of Japan defers details on scaling down its huge bond buying

Tokyo - The yen weakened and Japanese sovereign bond futures surged after the central bank said it would reduce debt purchases but delayed providing details until its next policy meeting in July.

The yen slumped as much as 0.6 per cent to 157.98 versus the US dollar. It also fell against the Singapore dollar, which rose 0.5 per cent to 116.739 yen as at 12.47pm on June 14.

Bond futures jumped as much as 80 ticks to 144.26, the biggest increase since late December.

Monetary policy was left unchanged, as expected, but investors had been primed for more news on bond purchases. For now, the gap between Japanese and US bond yields remains wide, weighing on the currency.

“This is much more dovish than the market expectation of a clear reduction in the bond buying amount to be announced today,” said RBC Capital Markets Asia FX strategy Alvin Tan. “It’s not at all clear at this point if the BOJ (Bank of Japan) has actually decided on a specific reduction of the bond purchase amount, or if it will only decide on this at the next meeting.”

While

a weaker yen

helps Japanese exporters and the local tourist industry, it also makes imports of energy and food more expensive, hitting consumers. More business leaders have also been expressing concerns about the overall impact on the economy.

The authorities have signalled they are ready to step into the market to support the yen. Japan spent a record 9.8 trillion yen (S$84.3 billion) earlier in 2024 to

prop up the currency

after it fell to a 34-year low against the US dollar.

Each month, the BOJ targets monthly government bond purchases of around six trillion yen to pump liquidity into the system and keep borrowing costs down.

The scale of the BOJ’s total assets is enormous – larger than the country’s gross domestic product – and the bank holds more than half the value of all Japanese government bonds (JGBs) in circulation.

Cutting back on bonds has been on the cards for months.

Policymaker opinion cited in the minutes of the BOJ’s April meeting said the bank “should indicate its intention to reduce its purchase amount of JGBs” because it “needs to reduce the size of its balance sheet”.

Other central banks worldwide have aggressively hiked interest rates to tackle soaring inflation in recent years.

“Reducing bond purchases is an important aspect for the Bank of Japan as it aims to normalise its monetary policy and support the yen,” Exness financial markets strategists lead Wael Makarem told AFP before the decision.

“However, given Japan’s fragile economic recovery and high public debt, the central bank may have to proceed cautiously… to mitigate the yen’s volatility and avoid market disruption or economic instability.” BLOOMBERG, AFP