TOKYO : The Bank of Japan may offer guidance on how it plans to reduce its $5-trillion balance sheet at its policy meeting on Friday, in a slow but steady retreat from its massive monetary stimulus.
Below are possible ways the BOJ could move to quantitative tightening , and scale back a balance sheet that has ballooned to nearly 1.3 times the size of Japan's economy after years of aggressive monetary easing.Since ending negative interest rates and bond yield control in March, the BOJ has pledged to keep buying roughly 6 trillion yen of government bonds per month to avoid the policy shift from causing an abrupt spike in bond yields.
With Japanese bond yields stable and the yen remaining on a weak note, the BOJ may decide to trim monthly purchases slightly from 6 trillion yen or lower the range at which it buys each month. The BOJ has a long way to go. At 125 per cent times Japan's gross domestic product , its balance sheet is five times the Fed's in ratio-to-GDP terms. That means it needs to start tapering fairly soon, analysts say.Japan's dire fiscal situation means the BOJ must avoid causing sharp yield spikes that would boost the cost of funding the country's huge public debt.
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