Michio Saito, known as “Mr. Japanese Bonds”, warned that the Bank of Japan will one day pull out of its bond-buying program, and the market should prepare for Japan to scale back its bond purchases to resume normal trading.
Michio Saito told the media on Thursday that while the Bank of Japan’s massive bond purchases may reduce market liquidity, it has not caused any disruption to government funding.
He believes that it is only a matter of time before monetary policy normalizes , and the Japanese Ministry of Finance has started a comprehensive study to ensure sufficient depth and liquidity in the market.
The remarks suggest that Japanese policymakers may already be preparing for the withdrawal of massive stimulus as inflation accelerates. Data showed that Japan’s overall CPI rose 2.4% in June, surpassing the central bank’s target for the third consecutive month.
Michio Saito has served as the director of the Finance Bureau of the Ministry of Finance of Japan since June this year, and is responsible for the issuance of Japanese government bonds. He dealt with the Japanese bond market crisis in the late 1990s, helped reform the Japanese bond market many times during his tenure in the government bond department, and was awarded the title of “Mr. Japanese Bond”.
The BOJ bought a record 16.2 trillion yen ($119 billion) of government bonds in June to defend its yield curve control (YCC) policy amid a battle with Wall Street bears. By the end of June, the Bank of Japan had bought half of Japan’s long-term government bonds.
At its July interest rate decision, the Bank of Japan remained on hold, keeping the benchmark interest rate at a record low of -0.1% and the 10-year bond yield target around 0%, allowing it to be in the range of -0.25% to 0.25% Internal volatility, aiming to push inflation to a stable level of 2%.
A series of bond-buying operations, coupled with the recent weakening of the US dollar due to recession expectations, continued to push up the price of Japanese government bonds. The yield on the 10-year Japanese government bond fell from a high of over 0.3% in June to the current 0.18%.