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BOJ paves way to cut super-long bond purchases in taper push

Bank of Japan headquarters, Tokyo

The Bank of Japan paved the way to buy fewer super-long bonds in October, amid calls from insurance companies to taper so as to let yields climb in the world's second-largest debt market.

The central bank lowered its purchase range for securities due in more than 25 years to between 10 billion ($89.2 million) and 100 billion for each operation in October, according to a statement Friday. That compares with a band of 50 billion to 150 billion for September. It kept the indicative buying ranges for other categories unchanged.

"The BOJ is not seen wanting to proactively control the yield curve, even if it probably sees it desirable that super-long yields steepen naturally on their own," said Eiichiro Miura, general manager of the fixed-income investment department at Nissay Asset Management in Tokyo.

The BOJ in July indicated that it will be more flexible with bond purchases amid criticism that the size of its holdings is distorting trading in the world's second-largest debt market. Global markets have been riveted by how high yields may climb on the so-called super-long Japanese bonds, as it may determine whether insurers and pension funds bring back some of the money parked overseas.

The 30-year yield has climbed 16 basis points to 0.905% since the BOJ's policy tweaks on July 31. Nippon Life Insurance Co., Japan's largest private life insurer, said in April it needs the yield to rise to more than 1% for it to consider buying.

The tenor is important for insurers given how it could match their long-term liabilities.

The BOJ surprised investors last Friday when it cut purchases of super-long maturity bonds at its regular operation, sending yields higher. Analysts then predicted that it could follow up with a range reduction for the October buying plan.

The changes to the October plan make it the first time that the BOJ has made back-to-back tweaks to its monthly plan since April-May last year. Under the September plan, the BOJ had reduced the number of days on which it would buy securities in the 1-to-10 year tenors by one, while increasing the amount that it could purchase at each operation.

Keeping the frequencies unchanged from the September plan indicates that the central bank is pressing ahead with scaling back its massive purchases that have crimped trading in the Japanese government bond market.

"It's possible for the BOJ to make small tweaks again after explaining at a planned regular meeting with JGB players in October," said Takenobu Nakashima, a senior rates strategist at Nomura Securities in Tokyo.