A reduction in the size of the BoJ’s JGB auction moved markets this week. This wasn’t policy tapering in an effort to reduce stimulus: the Bank now only buys what is needed to maintain the yield target and that amount has been falling for a while. Indeed, with bond redemptions rising, we now estimate that the net increase in the Bank’s JGB holdings will slow from ¥55 trillion last year to ¥30 trillion this year and to ¥25 trillion in 2019, while the yield target will remain unchanged throughout.
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