TOKYO: The Bank of Japan (BoJ) is set to consider whether to taper its bond purchases at a slower pace while also leaving its benchmark interest rate unchanged, in a decision that will be closely scrutinised by the bond market.
All 53 BoJ watchers surveyed expect no change in the central bank’s 0.5% interest rate at the two-day gathering concluding today.
The spotlight will instead fall on the BoJ’s updated plan to curtail its purchases of government bonds as it seeks to shrink its footprint in the market.
About two-thirds of respondents expect the cutbacks will be smaller from April compared with the current pace.
The meeting will carry implications for the global bond market, with governor Kazuo Ueda’s board signalling its views on recent yield volatility when it extends its quantitative tightening plan into next fiscal year for the first time.
Japan was seen as a source of global debt market jitters when yields on super long Japanese government bonds hit a record high last month.
The central bank began tapering bond buying last summer after scrapping its negative interest rate and yield curve control programme in March that year.
The BoJ’s holdings of government bonds decreased by a record 6.2 trillion yen in the first quarter as purchases slowed and debt matured, according to central bank data.
Even so, after more than a decade of conducting a massive monetary easing campaign, it still holds roughly half of all outstanding government bonds, compelling traders to scour every action it takes.
Since last August, the BoJ has reduced its bond purchases by 400 billion yen every quarter. Under that plan, monthly purchases would be almost halved by the first quarter of 2026 compared with the roughly six trillion yen before quantitative easing began.
A key focus of the June meeting will be the tempo beyond March.
BoJ officials are likely to consider slowing the pullback to about half the previous pace, meaning a 200 billion yen reduction in buying each quarter, as among their options.
“The destabilisation of the bond market isn’t desirable for the conduct of monetary policy,” said Ryutaro Kono, chief Japan economist at BNP Paribas. — Bloomberg
