Japan's Finance Minister “paves the way” to reduce debt purchases: Communication with the market is essential, new buyers need to be found

The Zhitong Finance App learned that Japan's Minister of Finance said that communication with market participants is a key factor in stable trading of government bonds. At this point, Japan's finance department is about to hold a high-profile meeting with investors. Japan's Finance Minister Katsushin Kato said in an interview on Friday: “We are in deep and careful communication with the market, and it is our responsibility to ensure that government bonds can be purchased.” He pointed out that as the Bank of Japan stopped buying bonds, the government needed to find other investors to fill this gap.

On the occasion of Katsushin Kato's remarks, Japan's Ministry of Finance is scheduled to hold a meeting with major traders on June 20. Prior to that, the Bank of Japan will announce its latest interest rate decision on June 17. The market generally expects the Bank of Japan to slow down the pace of reduction in the scale of bond purchases.

Market expectations are growing, and it is believed that the department will re-evaluate its bond issuance plan for this fiscal year. Previously, Japan's ultra-long-term bond yield fluctuated sharply. At the same time, in light of discussions on increasing fiscal spending, people also raised concerns about Japan's long-term financial situation.

Weak demand led to record yields on Japan's 30-year and 40-year treasury bonds last month, warning the Japanese government that it may need to reconsider the way it issues bonds. While stressing the importance of predictability, Katsunobu Kato also stated that the department “clearly indicates that the annual plan can be changed during the fiscal year,” but he did not specifically discuss changes in the current bond issuance plan.

Regarding the increase in long-term yield fluctuations, Katsushin Kato said that the emergence of a situation where life insurance companies no longer need to strictly abide by regulatory capital requirements is part of the reason for the sudden sharp fluctuation in yield.

The market is increasingly expecting that the sector may adjust its debt issuance plan, that is, it may increase the issuance of short-term bonds and reduce the issuance of long-term bonds. The department usually says that it is possible to adjust the distribution plan within a year. Such changes usually occur when additional funding is disbursed.

Katsunobu Kato said, “For example, we decide the composition of short-, medium-, or long-term bonds and other related matters. The Ministry of Finance will make decisions and implement them.”

Earlier this week, the department refuted speculations that it might buy back the bonds next month, saying the statement was “unrealistic.” Katsushin Kato ignored issues relating to bond buybacks, but he mentioned the difficulties faced by the entire bond market, which requires more purchasing demand.

The weakening investor demand for Japanese government bonds has raised concerns as the Bank of Japan is gradually reducing the scale of large-scale bond purchases. Since August of last year, the Bank of Japan has been gradually reducing government bond purchases at a quarterly rate of about 400 billion yen. However, as of the end of last year, it still held a total of 559.3 trillion yen (about 4 trillion US dollars) of government bonds, accounting for more than half of the total market volume.

Katsushin Kato said that in view of the Bank of Japan's continuing policy tightening, Japan needs to step up efforts to attract more domestic and foreign investors into the Japanese treasury bond market. He said developing more attractive bond products is one way to meet this demand.

Katsushin Kato stressed that although interest rates fall within the competence of the central bank, Japan's Ministry of Finance is responsible for ensuring that government debt can continue to be purchased. Katsushin Kato said, “I do think that if more domestic investors hold government bonds, the holding of Japanese treasury bonds may be more stable.”

Katsushin Kato mentioned foreign exchange risk and other factors. Whether these treasury bonds are held by domestic investors or international investors, the most important thing is that government bonds are bought.