BOJ's bond operation plan fixes dates, but leaves size uncertain

By Hideyuki Sano and Stanley White

TOKYO (Reuters) - The Bank of Japan announced on Tuesday the dates of its bond-buying operation for March, a move an official said is aimed at making its operations more transparent and reducing market volatility.

The move comes after the central bank's erratic bond operation since late January confused market players, leading to a surge in Japanese government bond yields to one-year highs earlier this month.

"Today's revision was aimed at smoothing our market operations by curbing excessive market volatility through raising the transparency of our operation's schedule and frequency," said a senior BOJ official.

The BOJ is buying the debt for its yield curve control programme, which was introduced in September to keep shorter-dated bond yields lower while allowing longer-dated ones to rise.

In theory, this would make lending more profitable for banks while maintaining easy policy, but in practice the programme sowed confusion over the central bank's intentions.

To clear up the confusion, the BOJ said on Tuesday it would hold buying operations six times in March for one-year to five-year, and five-year to 10-year tenors. For superlong bonds, there will be buying five times. These frequencies are the same as in recent months.

But the BOJ's revamped monthly plan left out one key component that used to be in its monthly operation plan announcements - the exact amount of bond buying for each maturity. Instead, the central bank gave a range for its purchases.

Also dropped from previous statements was a phrase that it plans to buy 8 trillion to 12 trillion yen ($71 billion-$107 billion) of JGBs every month.

A SLIGHT TRIMMING?

Still, the plan indicates the BOJ is likely to maintain the pace of purchases in most maturities while trimming slightly its buying of short-term bonds.

The BOJ said it would buy 350 billion to 550 billion yen of five- to 10-year bonds in each of its buying dates in March.

The midpoint of that range is 450 billion yen, the same amount as it bought in February.

On the other hand, the BOJ said its buying of one- to three-year bonds will be 300 billion to 400 billion yen. The midpoint is 350 billion yen, or 50 billion yen less than the 400 billion yen purchased in February.

Similarly, buying of three-to-five year JGBs will be 350-450 billion yen in March, so it could be smaller than the 420 billion yen bought in recent months.

If the BOJ's buying is at the midpoint of the indicated ranges, bond buying in March will fall slightly short of 9.0 trillion yen, a bit below 2016's monthly average.

In February, the BOJ bought 10.2 trillion yen of JGBs, the second largest monthly buying after the record 11.2 trillion yen in November 2014.

February's surprisingly-heavy activity resulted partly from an unplanned special buying of 10-year JGBs at a fixed yield of 0.11 percent on Feb. 3, an emergency measure to stem a rise in the 10-year bond yields.

Some economists say rising yields in overseas economies are likely to put upward pressure on Japanese yields, which will make it more difficult for the BOJ to keep yields lower in future.

This would further complicate policy for the BOJ, which is already under scrutiny for failing to generate inflation despite almost four years of radical quantitative easing.

($1 = 112.38 yen)

(Reporting by Hideyuki Sano, Stanley White and Tomo Uetake; Editing by Richard Borsuk)