TOKYO Feb 14 The Bank of Japan's lent a record
amount of five-year Japanese government bonds at a regular
operation on Tuesday, having induced a severe shortage that has
crimped activity in the debt market.
The central bank lent a record 936 billion yen ($8.25
billion), the largest on record, of so-called current issues of
five-year JGBs on Tuesday through a repurchase agreement.
The BOJ regularly lends JGBs of various maturities through
these operations, in order to keep the market liquid and stable.
Recently, however, liquidity has dried up due to the BOJ's
massive debt-buying operations, which are part of its extensive
For example, according to BOJ data the central bank held
about 60 percent of the current issues of five-year JGBs as of
the end of January.
Consequently, bond dealers and other market players are
unable to borrow JGBs from other participants, forcing many of
them to borrow from the BOJ.
"If we cannot find JGBs in the market to cover such short
positions, we have to rely on the BOJ's lending operations,"
said a bond dealer at a domestic brokerage.
In theory, a simple solution for the BOJ to improve
liquidity might be for the central bank to reduce the amount of
JGBs it buys through its regular debt-purchasing operations.
But when it tried that in January, by skipping a five-year
bond buying operation, it sent a severe shock through the JGB
market, however, causing the yield curve to steepen sharply and
forcing the BOJ to conduct a special buying operation last week
to calm frayed investor nerves.
($1 = 113.4500 yen)
(Reporting by the Tokyo markets team; Editing by Simon