BOJ policymakers agree flexible operations curb bond volatility

Bank of Japan policymakers concluded there was no need for additional steps in June to contain interest rate spikes, as the central bank's flexible bond buying operation had curbed market volatility, the minutes of their policy meeting last month showed Wednesday.

At the meeting on June 10 and 11, the nine-member Policy Board discussed the possibility of extending the term of fixed low-interest-rate loans to financial institutions amid rising long-term interest rates and sliding Japanese stocks at the time, the minutes showed.

Under its fixed-rate fund provision program, the BOJ currently offers maximum one-year loans to financial institutions such as banks at an annual interest rate of 0.1 percent, taking government bonds and other securities as collateral.

The provision of longer-term fixed-rate loans would make it easier for financial institutions to buy longer-term bonds, thus contributing to lowering bond yields.

In the meeting, some members said introducing such operations "would in itself enhance confidence in the markets, which in turn was expected to restrain excessive interest rate fluctuations."

But some members argued that the extension "could be misinterpreted by market participants as a revision to the monetary policy framework or a measure conveying a message regarding a change in the policy duration, rather than just an expansion of market operation measures," according to the minutes.

Some members also said that the bank's staff was "given room for flexibility" in conducting bond buying operations at this moment and that the BOJ was able to promote stable formation of interest rates through flexible market operations under the current framework for the time being, it said.

"Based on this discussion, members concurred that it was not necessary at this time for the bank to extend the maximum duration of loans provided through its funds-supplying operations against pooled collateral," it said.

Regarding recent volatility in long-term interest rates in Japan, a few members pointed to the possibility that there were differences in views among market participants on the prospects for short-term interest rates.

A few members said it was vital for the BOJ to "firmly anchor short-term interest rates at low levels by reiterating its commitment to continue with quantitative and qualitative monetary easing as long as it was necessary" for maintaining 2 percent price stability target stably, the minutes said.