April 10, 2015 / 9:32 AM / 4 years ago

INTERVIEW-Nippon Life chairman: more BOJ quantitative easing undesirable

* Nippon Life is major JGB investors, worries about bond market

* Chairman expresses concerns about bond market functioning

* Nippon Life also raises doubt about exit from QE

By Stanley White and Yuko Yoshikawa

TOKYO, April 10 (Reuters) - - The Bank of Japan should not expand government debt purchases under its quantitative easing programme because the central bank already monopolises the debt market and its balance sheet is extremely large, the chairman of Nippon Life Insurance Co. said.

It is also unwise to assume that Japanese yields will not spike simply because domestic investors hold more than 90 percent of government debt, Kunie Okamoto said in an interview with Reuters.

Okamoto’s comments are the strongest to date from a large institutional investor arguing against further BOJ purchases of government debt and could temper speculation that the central bank will ease monetary policy further in coming months to boost the sluggish economy.

“Additional monetary easing is not desirable,” Okamoto said on Friday.

“The BOJ is already buying around 90 percent of bonds in the market. It is not good for this to be sustained.”

Nippon Life Insurance and other life insurers are major buyers of long-term government debt because they need a steady income stream to offset their liabilities, so their views on the bond market carry weight.

The BOJ is buying government debt at an annual pace of about 80 trillion yen ($664.89 billion) as part of bold monetary easing aimed at bringing inflation to 2 percent and preventing a return to Japan’s 15-year struggle with deflation.

BOJ Deputy Governor Hiroshi Nakaso told Reuters on Friday that a cut to the central bank’s consumer price forecast would not be enough to trigger further easing, which could also curb speculation that slowing inflation will force the bank to act.

It is difficult to say the bond market is functioning normally, he said, echoing concerns among analysts that the BOJ is crowding out institutional investors and keeping yields artificially low.

The BOJ has been taking unconventional measures for some time by intervening in the bond market, and this situation needs to return to normal, Okamoto said.

Okamoto also warned that simply because banks and life insurers have been reliable buyers of JGBs in past does not mean that they will continue to do so in the future.

Since the start of quantitative easing in April 2013, the BOJ’s balance sheet has expanded to around 320 trillion yen, which is around 60 percent of the country’s gross domestic product.

The BOJ’s balance sheet is so large that the central bank will need to shrink it, Okamoto said, but he is not sure when this should be done.

Okamoto also raised doubts about how the BOJ could exit from its unconventional policy, saying the U.S. Federal Reserve’s experience shows an exit from quantitative easing is not always straightforward. ($1 = 120.3200 yen) (Editing by Kim Coghill)

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