Japan Considers Cutting Bond Auctions Amid Improving Market Conditions

Japan's Ministry of Finance is set to discuss reducing issuance under its liquidity-enhancement auctions for medium-term government bonds in a meeting next week, sources say.

The move reflects improving supply-demand conditions in the government bond market following successive reductions in bond purchases by the Bank of Japan, which has diminished the need for additional supply.

Liquidity-enhancement auctions were introduced in 2006 to boost market liquidity by reopening and issuing additional amounts of bonds that have become scarce in the secondary market.

The ministry is reviewing issuance of maturities in the 5-to-11-year sector as shortages of 'cheapest-to-deliver' bonds, a key reference issue in the JGB futures market, have eased, reducing the need for additional supply.