Bank of Japan Announces Additional Schedule for Long-Term Government Bond Purchases

The Bank of Japan’s Financial Markets Bureau is letting people know they’ve decided to include an extra date for buying long-term government bonds in October 2023. Here are the key points:

  • Bonds with More Than 5 Years but Less Than 10 Years Left: This is the kind of bonds they’re looking to buy.
  • Amount to be Bought: They’ll tell us how much they’re going to buy when the offer happens.

They also mention that, based on how things are going in the market, they might keep buying more of these long-term government bonds and do other operations. If you have questions, you can contact the Market Operations Division of the Financial Markets Bureau at 03-3277-1234 or 03-3277-1284.

Central banks, like the Bank of Japan, engage in buying government bonds as part of their monetary policy tools. Here are some key reasons why they do this:

  1. Interest Rate Management: One of the primary reasons is to manage interest rates. When a central bank buys government bonds, it increases the demand for these bonds, causing their prices to rise. As bond prices go up, their yields (interest rates) go down. This is done to influence overall interest rates in the economy. By lowering interest rates, the central bank aims to stimulate borrowing and spending, which can boost economic activity.
  2. Inflation Control: Central banks often target a specific inflation rate. Buying government bonds is a way to inject money into the economy. When there’s more money circulating, it can contribute to increased spending, potentially leading to higher inflation. Conversely, selling bonds can help reduce money supply and control inflation if it’s rising too quickly.
  3. Liquidity Management: Central banks also engage in buying and selling bonds to manage liquidity in the banking system. By buying bonds, they provide banks with cash, ensuring there’s enough money circulating in the economy. This is crucial for the smooth functioning of financial markets and to prevent liquidity crises.
  4. Stimulating Investment: By reducing interest rates, central banks aim to make borrowing more attractive for businesses and individuals. Lower interest rates can stimulate investment in various sectors, including housing and infrastructure, which can have positive effects on economic growth and employment.
  5. Currency Value: Bond purchases can also influence the value of the country’s currency. If a central bank buys its own government bonds, it increases the money supply, potentially leading to a decrease in the value of the currency relative to others. This can make exports more competitive.

In summary, central banks use bond-buying as a tool to achieve various economic objectives, including managing interest rates, controlling inflation, ensuring liquidity, stimulating investment, and influencing the value of the national currency. These actions are part of a broader strategy known as monetary policy.