The Bank of Japan’s annual purchases of JGBs have dropped to less than half of the official target of “about 80 trillion yen.” (See Chart 1.) Since the launch of yield curve control in September 2016 the Bank has slowed its JGB purchases as higher credibility has allowed it to defend its yield target with ever lower purchases. But the worry now is that yields might break the lower bound. Global bond yields have plunged on expectations of monetary easing by the US Federal Reserve. JGB yields are now close to the self-imposed floor of -0.2%, so the Bank will probably have to slow the expansion in its JGB holdings further and possibly halt them. If stopping purchases altogether isn’t enough, we suspect the Bank would continue to defend its yield target by selling some of its holdings.
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