Japan's Ministry of Finance has floated a plan to reduce the issuance of inflation-linked Japanese government bonds (JGB) at its next auction to 400 billion yen from an originally planned 500 billion yen, a senior ministry official told a briefing on Wednesday. Speaking to reporters after a meeting with JGB primary dealers earlier in the day, the ministry official also said a majority of market players agreed to the idea.
The ministry would make a formal decision next week after holding another meeting with JGB investors on Thursday this week, the official added. His comments came after Reuters reported that the ministry was considering such a measure after the collapse in the price of the inflation-linked bonds.
The price of the inflation-linked JGBs has been under pressure for months, as concerns about a slowdown in the global economy and weak oil prices suppress investors' inflation expectations. The fall in the price was accelerated after the BOJ adopted negative interest rates in January as it raised worries about banks' profitability and destabilised markets, rather than boosting economic confidence.
This will be the first time the ministry reduces the issue amount of inflation-linked JGBs after it resumed their issuance in 2014 following a hiatus of more than five years. The ministry is scheduled to hold the next auction of the bonds on April 12. The official also said the ministry proposed starting buyback of inflation-linked JGBs to support the sagging market further. Its plan, to buy 20 billion yen of inflation-linked JGBs in April and again in June, was well-accepted among primary dealers, the official said.
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