The Otemachi One Tower building in Tokyo, Japan.
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Japan’s governmentplanstocutsalesofsuper-longbonds by about10%from the original plan in a rare revision to itsbondprogram for the current fiscal year, trimming overallbondissuance as a result, adraftdocument seen by Reuters showed.
The move aims to soothemarketconcernsover supply-demand imbalances, after weak demand at recent auctions and a surge insuper-longyields to record high levels last month rattled thebondmarket.
The step also follows the Bank ofJapan’sdecisionthis week to decelerate the pace ofbondpurchases reductions from next fiscal year, signaling its preference to move cautiously in removing remnants of its massive, decade-longstimulus.
The revised issuance plan will be presented to primary dealers for discussion at a meeting on Friday.
Additionally, there are also ideas ofbuying backsome previously issuedsuper-longJGBs with low interest rates to improve the supply-demand balance.
The planned reduction in 20-, 30- and 40-yearsuper-longbondsaleswould be partly offset by increased issuance of shorter-term notes, as well asbonds specifically designed for households.
As a result, the totalJapanese governmentbond(JGB) scheduledsalesfor the year through next March are set to fall by 500 billion yen ($3.44 billion) to 171.8 trillion yen, according to thedraftof the revisedbondprogram.
Issuing a larger amount of shorter-termbonds, however, would require a careful balancing act as the government would need to roll over debt more frequently and make its finances more vulnerable tobondmarketswings.
Specifically, the revised plan calls for reducing 20-year JGBsalesby 900 billion yen to 11.1 trillion yen, 30-year JGBs by 900 billion yen to 8.7 trillion yen and 40-year JGBs by 500 billion yen to 2.5 trillion yen.
This means starting next month,salesof each of these tenors will becutby 100 billion yen at every auction.
Instead, the government will boostsalesof two-year debt, one-year and six-month treasury discount bills by 600 billion yen each. At every auction starting October,salesof two-year debt will be raised by 100 billion yen to 2.7 trillion yen.
The government will also increaseissuance of principal-guaranteed JGBs for households by 500 billion yen.
The original plan had called forcuts in 30- and 40-yearbondsalesto reflect shrinking demand from life insurers who mostly completed purchases oflonger-datedbonds to comply with new solvency regulations.
But as the worsening finances of advanced economies drew moremarketscrutiny,super-longJGBs became a target of aglobalbondsell-offlast month.
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