The Bank of Japan’s unprecedented asset purchase program has released a creeping paralysis that is freezing government bond trading, constricting the yen to the tightest range on record and braking stock-market activity.
Historical price volatility on Japanese bonds slid to a 2 1/2-year low of 0.913 percent on June 13 and a lack of activity delayed the start of trading for four days last week. The yen has been in a 4.68-yen range since Jan. 1, the tightest since Japan ended currency controls four decades ago. Average trading on the Topix index is near its lowest level in 1 1/2 years.
Asset purchases have not only made BOJ Governor Haruhiko Kuroda the biggest player in Japan’s $9.6 trillion bond market, they have also given him the most leverage over currency and equity markets in the world’s third-largest economy. Kuroda last week refrained from either expanding or reducing monetary easing that drove the yen to its biggest annual loss in more than three decades, pushed yields to a record low and boosted the Topix index to its highest since 2008.