March 31, 2017 / 8:37 AM / 6 months ago

BOJ seen keeping bond-buying pledge despite slowing purchases

* BOJ likely trimmed bond buying amount in March

* BOJ to cut short-term JGB buying in April

* Kuroda has said bond-buying amount may fluctuate

* BOJ next meets for rate review April 26-27

By Leika Kihara and Hiroyasu Hoshi

TOKYO, March 31 (Reuters) - The Bank of Japan has no immediate plan to remove a loose pledge to keep buying government bonds at a set annual pace, sources familiar with its thinking say, despite signs of a slowdown in its bond purchases.

The BOJ likely bought 8.58 trillion yen ($76.7 billion) in Japanese government bonds (JGB) in March, down 1.62 trillion yen from February when it bought the second largest amount on record, Reuters estimates showed.

The slowdown came as the BOJ reduced purchases of short-term and super-long bonds in several auctions during the month.

A schedule of its regular debt-purchasing operations released on Friday showed the central bank will also trim the amount of shorter-dated JGBs it buys in April.

Under a new framework adopted in September last year, the BOJ shifted its policy target to interest rates from the pace of money printing after more than three years of massive stimulus failed to foster sustainable growth or lift inflation to its 2 percent target.

While it no longer commits to buying government bonds at a set pace, the BOJ left intact a loose pledge to increase its bond holdings at an annual pace of roughly 80 trillion yen to appease advocates in its board of aggressive money printing.

Some market players have speculated that the BOJ will soon remove the loose guidance from a statement announcing its policy decision to give itself more flexibility in how much bond it buys each month.

But the central bank remains wary of doing so given uncertainty on how increases in global bond yields - driven by expectations of steady U.S. interest rate hikes - could affect Japanese yields, the sources say.

“The BOJ’s monthly bond buying amount tends to fluctuate on various factors, so there’s no guarantee it will keep falling,” one of the sources said.

“It’s necessary to look at the longer-term trend” before deciding whether to remove the bond-buying pledge, another source said, a view echoed by a third source.

The balance of the BOJ’s bond holdings increased by roughly 70 trillion yen in March compared with a year ago, according to estimates by Mizuho Securities, well below the central bank’s 80 trillion yen pledge.

BOJ Governor Haruhiko Kuroda has stressed that the amount of the bank’s bond purchases could fluctuate depending on how much is needed to achieve its yield targets, as it no longer targets the pace of money printing.

Japanese bond yields have moved stably in March unlike in January and February, when speculation of an early tapering of the BOJ’s asset purchases jolted the bond market.

“Market players have become accustomed to the BOJ’s yield curve control policy and so are less fearful of any slowdown in the bank’s bond purchases,” said Tetsuya Matsunaga, senior market analyst at Mizuho Securities.

The BOJ next meets for a rate review on April 26-27.

$1 = 111.8100 yen Additional reporting by Sumio Ito

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