Bank Of Japan's Bond Purchase Reduction Leaves ETFs Flat, Yen Softens

U.S.-traded Japan bond exchange-traded funds are staying flat on Friday following the Bank of Japan’s announcement to reduce its purchases of government bonds. This move, coupled with the decision to maintain its policy interest rate, has led to decreased spending and a subsequent dip in the bond market.

Monetary tightening should prop up the Japanese yen, but the currency instead softened in response to the central bank offering no specifics on its bond strategy, the Wall Street Journal reported.

Despite the overall market’s muted reaction, individual ETFs showed varied performance. WisdomTree Japan Interest Rate Strategy Fund JGBB remained unchanged, while SPDR Bloomberg Barclays International Treasury Bond ETF BWX slipped 0.09%. Franklin International Aggregate Bond ETF FLIA ticked up 0.4% on Friday.

Read also: Bank Of Japan Sticks To Easy Monetary Policy Amid High Uncertainties

The yen traded at around 158 to the U.S. dollar after the decision, up from 157 earlier, and recovered some lost ground later in the day.

The bank kept its target for the overnight call rate between 0% and 0.1%, where it has been since it ended the world’s last negative rate interest rate policy in March, according to WSJ.

Japan is in a tightening cycle, in contrast to the European Central Bank, which lowered rates for the first time since 2019, and the Federal Reserve, where officials expect to cut rates once this year. 

The Bank of Japan said in March it would keep buying Japanese government bonds worth around 6 trillion yen, equivalent to $38 billion, every month to maintain easy monetary conditions. On Friday, it said that amount would be reduced, with details to be decided at its next meeting at the end of July, the Journal reported.

The Japanese currency has stayed near its lowest level in more than three decades despite the government's recent yen-buying move as investors expect the interest-rate gap between the U.S. and Japan to remain wide.

Read now: Can Japan’s Economy Continue To Blossom If Bank of Japan Raises Rates? Apparently So.

Photo: Shutterstock