The Bank of Japan likely reduced government bond buying this month than in December by forgoing purchases of short-term bonds on Wednesday, a move some market players saw as a prelude toward tapering the central bank's massive asset-buying programme.
But Wednesday's move was more about getting markets accustomed to a decision the BoJ made in September, which was to shift its policy focus to interest rates from the pace of bond buying, sources familiar with its thinking say.
"What's most important is to achieve the bond yield targets," said one of the sources. "Under the current framework, interest rates take priority over the amount of bond buying," the source said, a view echoed by several others.
Japanese government bonds tumbled on Wednesday after the BoJ surprised markets by not offering to buy JGBs with one to five years to maturity, when such an operation had been deemed as a certainty.
Many BoJ officials say that the central bank may gradually slow its bond purchases, if it can achieve its yield targets through buying smaller volumes.
But they also stress that the BoJ won't taper its asset purchases abruptly and would maintain its massive balance sheet until inflation sustainably hits its 2 percent target.
"The amount, timing and frequency of our bond-buying market operation is decided in a way that would guide the yield curve in a shape deemed appropriate" by the BoJ's policy board, a senior central bank official told Reuters on Wednesday.
After more than three years of heavy asset purchases failed to jolt the economy out of stagnation, the BoJ revamped its policy framework in September into one targeting interest rates instead of the pace of money printing.
The BoJ now pledges to guide short-term interest rates at minus 0.1 percent and 10-year JGB yields around zero percent.
It also has another loose commitment to keep buying JGBs at the current pace so the balance of its holdings increases around 80 trillion yen ($704 billion) per year. But many in the central bank hope to gradually slow the pace of purchases, as its huge buying is drying up market liquidity.
The BoJ buys bonds with short maturities six times per month and so far in January it has bought them four times, leaving two more operations to do by early next week.
Having skipped its market operation on Wednesday, the BoJ likely bought roughly 820 billion yen less in short-dated bonds this month compared with December, according to estimates based on central bank data.
The total amount of bond purchases by the BoJ will also be smaller than in December, unless an abrupt spike in yields forces the bank to conduct bond-buying operations at an unexpected timing by the end of this month, analysts say.