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TOKYO (Reuters) - The Bank of Japan rebuffed speculation that it was engaging in "stealth tapering" as its massive asset-buying programme nears its limit, stating instead its reduced bond buying reflected receding upward pressure on Japanese yields from U.S. Treasuries.
Masayoshi Amamiya, the BOJ's executive director overseeing monetary policy, told Parliament on Tuesday the pace of bond buying had slowed because U.S. Treasury yields have fallen - enabling the central bank to cap Japanese long-term rates while also reducing its purchases.
"The slowdown came as a result of our policy of guiding yields at appropriate levels," he told parliament, when asked by a ruling party lawmaker why the BOJ's purchases were slowing.
"The BOJ will continue to take necessary steps to stabilise prices, while keeping an eye on how they affect its financial health," he said.
After three years of heavy asset buying failed to drive up inflation, the BOJ switched its policy framework last year to one that capped long-term interest rates from a policy that had targeted the pace of money printing.
BOJ Governor Haruhiko Kuroda has repeatedly said the central bank still had plenty of bonds to buy, and that it was premature to openly debate an exit strategy from the stimulus programme.
But buying large amounts of Japanese government bonds is expected to become increasingly difficult as the central bank already owns more than 42 percent of the entire JGB market.
Indeed, recent data showed the BOJ's bond buying has slowed considerably in recent months.
Most analysts expect the BOJ to slow the pace further to around 60 trillion yen ($546 billion) by the end of year and to omit from its policy statement a loose pledge to increase its JGB holding by 80 trillion yen a year at some point.
The fate of the pledge may be among topics the BOJ's nine board members will discuss at their two-day policy meeting that starts on Thursday.
With the BOJ now targeting interest rates, many central bank policymakers see the 80-trillion-yen pledge as obsolete and largely symbolic. But some remain wary of removing the pledge now fearing it could be misinterpreted as a sign the BOJ is contemplating withdrawing its stimulus programme at short notice.
($1 = 109.9700 yen)
Reporting by Leika Kihara; Editing by Chris Gallagher and Eric Meijer