by Leika Kihara
TOKYO (Reuters) – The Bank of Japan’s (BoJ) massive asset purchase program implemented in 2013 led to a sharp deterioration in the functioning of the bond market, a phenomenon which worsened after the implementation of the yield curve control (YCC) policy, a central bank survey of market operators showed on Friday.
The results of this survey highlight that the central bank’s ultra-accommodative monetary policy has had an impact on market liquidity in the world’s third largest economy, which could weigh on its future decisions in the event of a change of direction with the abandonment expected negative rates next year.
The survey was carried out as part of an in-depth review of the impact on the economy and financial markets of the BoJ’s 25-year unconventional monetary easing policy.
The transmission index, measuring how market participants perceive the functioning of the bond segment, deteriorated sharply, falling to 5 points after the BoJ adopted quantitative and qualitative easing (QQE) in April 2013, while it was at 62 points before this measurement, specifies the survey.
After the implementation of negative interest rates in January 2016 in Japan, the index further deteriorated to -48 points, before plunging to -71 after the adoption of the yield curve control system which limits the fluctuation of Japanese bonds to ten years, we can read in the survey.
Former BoJ Governor Haruhiko Kuroda implemented QQE in April 2013, in order to cause a jolt and bring the Japanese out of deflationary lethargy by printing money, so that inflation rises towards the bank’s 2% objective.
With inflation now exceeding 2% for more than a year, many market participants expect current BOJ Governor Kazuo Ueda to end this massive monetary support program next year.
(Reporting Leika Kihara; French version Claude Chendjou, edited by Blandine Hénault)
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