BOJ Sends Hawkish Signal with Reduced Bond Purchase Offer, Signaling Potential Tightening

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BOJ Sends Hawkish Signal with Reduced Bond Purchase Offer, Signaling Potential Tightening

The Bank of Japan's Hawkish Signal

The Bank of Japan (BOJ) sent a hawkish signal to markets on Monday by reducing the amount of Japanese government bonds it offered to buy in a regular purchase operation. This move suggests a potential shift towards tighter monetary policy.

The central bank cut the offer amount for bonds with five to ten years left to maturity to 425 billion yen ($2.73 billion) from 475 billion yen at the previous operation on April 24. While this amount remained within the previously announced range of 400 billion to 550 billion yen, it signaled a tightening of the BOJ's grip on bond purchases.

This action aligns with the hawkish shift among board members revealed in the minutes from the BOJ's last policy meeting in April. The minutes indicated a potential for steady interest rate rises following the first hike since 2007 at the March meeting.

Despite the hawkish signal, market reactions were relatively muted. The two-year yield added 0.5 basis points to 0.32%, a level not seen since July 2009. This muted response can be attributed to the upward pressure on yields already exerted by the advance in U.S. yields overnight.

Analysts believe that the market had already anticipated a reduction in purchases due to the hawkish tone of the previous meeting's minutes. This explains the relatively calm market response to the BOJ's latest move.