BOJ is liquidity demon in JGB market

Bank of Japan is buying securities worth ¥ 80 trillion per month and kept largest portion of its portfolio in Japanese govt. bonds.

• Traders and investors are raising concerns that it is sucking liquidity from the market. It has already cornered about 30% of the government bonds and in some issues it holds about 70% of the issuance.

However, this massive easing has yet to reach its target and so far failed to boost the Japanese economy any significant ways. Latest CPI shows that core component has fallen to zero percent, when sales tax component is excluded which was raised last year.

• BOJ has dropped its deadline to reach the targeted inflationary pressure of 2%, which puts doubt whether the program would be sufficient to strike inflation.

• BOJ official Harada has indicated that easing might be increased further and any drop in price levels is due to energy price falls. However any increase of pace would be difficult to achieve as the board remains heavily divided and any further increase would bring BOJ close to holding 50% of Japanese government bonds (JGB) by 2016. Chart courtesy sober look and Scotiabank.

Yen is trading at 119.8 against dollar, down close to 0.65% today.