BOJ bonds: Japan Post Bank said on Thursday it will expand investment into long-term government bonds to take advantage of rising yields from the central bank’s expected tapering of its huge bond purchases.
The investment appetite of Japan Post Bank, a former state-owned giant with total assets of $1.5 trillion, may help keep long-term interest rates low, even as the Bank of Japan (BOJ) begins to trim bond purchases under a plan set for release next month.
“We have already begun shifting investment towards government bonds from deposits in light of the shifting trend in Japan’s interest rates,” a public relations official at Japan Post Bank said.
“We plan to keep expanding investment mainly into long-term Japanese government bonds (JGB),” or notes with 7–10 years of maturity, taking into account the size of the BOJ’s future bond buying taper and the market fallout, the official said.
The remarks came in response to a query by Reuters on how the BOJ’s quantitative tightening (QT) plan, due out next month, could affect Japan Post Bank’s investment strategy.
As one of the country’s biggest market players, Japan Post Bank has huge influence in the JGB market.
It has ramped up investment in JGBs, with the balance of holdings totaling 5.15 trillion yen ($32.56 billion) as of March, expanding 1.5-fold from levels in December last year.
With inflation having exceeded its 2 per cent target for two years, the BOJ is steadily rolling back its massive stimulus programme.
In March, it ended a policy that capped long-term bond yields around zero. Last week, it decided to start trimming its bond purchases and will announce a detailed plan at its July meeting on reducing its nearly $5 trillion balance sheet.
The diminishing presence of the BOJ, which now holds roughly half of the total JGBs sold in the market, has heightened the need for the government to find stable buyers of JGBs and avoid a bond selloff that could trigger a damaging spike in yields.
The government is laying the groundwork to sell shorter debt to lure private banks into ramping up investment in JGBs.
Many financial institutions, including Japan Post Bank, had reduced JGB holdings during the BOJ’s radical monetary easing since 2013, which crushed yields they could earn from JGBs and forced them to seek investment with higher returns.
Japan Post Bank’s renewed interest in JGBs highlights a shift in domestic investors’ strategy caused by the growing prospects of interest rate hikes by the BOJ.
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