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Japan CB Trims Stimulus, Prompts Taper Talk

Japan CB Trims Stimulus, Prompts Taper TalkJapan CB Trims Stimulus, Prompts Taper Talk

Speculation the Bank of Japan may wind back its monetary stimulus this year gripped markets on Tuesday after the central bank trimmed the amount of its purchases of Japanese government bonds.

Traders appeared to latch on to the BoJ announcement that it will buy less of the long-dated bonds, sending the dollar down about 0.5% against the yen and the longer dated 20- and 40-year bond yields up to their highest in a month, Reuters reported.

While the move was in line with the BoJ’s subtle reduction in its bond buying, the so-called ‘stealth tapering’, traders said it highlighted how sensitive markets are to a pullback in the massive stimulus that has been the center piece of Prime Minister Shinzo Abe’s ‘Abenomics’ policies of the past 4-1/2 years.

BoJ Governor Haruhiko Kuroda has repeatedly dismissed the chance of withdrawing stimulus any time soon, even as some policymakers have recently expressed concerns over the perceived demerits of monetary easing, especially the hit on financial institutions’ profit margins.

That has led to speculation that the central bank may have to consider raising its yield targets or slow purchases of risky assets later in 2018 and bringing Japan in line with a host of developed nations which have started to tighten policy, partly thanks to a synchronized uptick in global growth.

In all, the BoJ cut buying of 10- to 25-year bonds and 25- to 40-year paper by 10 billion yen ($88.39 million) each, from its previous operations, to 190 billion and 80 billion yen respectively.

The announcement pushed the dollar to a session low of 112.50 yen, down around 0.5% on the day.

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