BOJ mulls big balance sheet after CPI target
Japanese central bank plans to buy long-term government debt until inflation hits 2pc to reduce the risk of a surge in long-term bond yields
Bank of Japan officials are considering maintaining a large balance sheet for the central bank even after it achieves its inflation target, reducing the risk of a surge in long-term bond yields, according to people familiar with the discussions.
Under the potential strategy, the bank would use cash from maturing securities in its portfolio to buy long-term government debt, the people said.
Governor Haruhiko Kuroda and his colleagues have yet to meet their inflation target, and pledge to continue asset purchases until consumer prices are rising at a 2 per cent pace.
The possibility of permanently large balance sheets - in Japan's case, now amounting to more than half the size of the economy - may become a global legacy of unprecedented stimulus measures.
The central bank discussions parallel preparations at the Federal Reserve to avoid an exit strategy of asset sales.
"There's no need for the BOJ balance sheet to go back to where it was," said Hiromichi Shirakawa, the chief Japan economist at Credit Suisse Group and a former central bank official. "It's a realistic approach to keep the size of the balance sheet large for a while to avoid a spike in yields."