BOJ leans toward pausing bond-buying taper

The Bank of Japan is leaning toward maintaining bond purchases at roughly ¥2.1 trillion per month beyond fiscal 2027, according to sources cited by Reuters.marketscreener
The nine-member board is split between prioritizing market stability and continuing to shrink the BOJ’s roughly ¥530 trillion balance sheet, sources said.economictimes
A decision is expected at the June 15-16 meeting, where the BOJ is also widely anticipated to raise its policy rate to 1% for the first time since 1995.reuters

BOJ Considers Pausing Bond Purchase Taper After Fiscal 2027

The Bank of Japan will consider maintaining its current pace of government bond purchases beyond fiscal 2027, pausing a tapering process that would mark a turning point in the central bank’s quantitative tightening strategy, according to sources familiar with the deliberations reported by Reuters on Tuesday.marketscreener

A Divided Board Weighs Stability Against Normalization

At its June 15-16 policy meeting, the BOJ will review its bond taper plan running through March next year and lay out a new roadmap for fiscal 2027 and beyond. With no changes expected to the existing taper plan, investors are focused on whether the central bank will continue reducing monthly bond purchases or hold steady at roughly 2.1 trillion yen ($13 billion) per month.economictimes

Four sources familiar with the BOJ’s thinking told Reuters the central bank is leaning toward a pause, though the decision could be a close call given that the nine-member board is split between those prioritizing market stability and others who see the need to steadily shrink the BOJ’s roughly 530 trillion yen balance sheet.reuters

“The BOJ can afford to pause its taper as its holdings will fall significantly just with the runoff of maturing bonds,” one source said.channelnewsasia

JGBs Rally as Rate Hike Looms

Japanese government bonds rallied on Tuesday, reversing earlier declines, after the news emerged. The 20-year JGB yield fell 7 basis points while the 30-year yield dropped 6.5 basis points, as investors assessed the implications for the BOJ’s balance sheet strategy.reuters

The taper deliberations come alongside near-certain expectations of a rate hike at the same meeting. Markets are pricing in roughly a 98% probability that the BOJ will raise its short-term policy rate from 0.75% to 1%, which would be the highest level since 1995. Governor Kazuo Ueda all but confirmed the move in a speech last week, signaling a clear shift toward prioritizing inflation control.reuters

Balancing Two Fronts

The BOJ currently trims monthly bond buying by 200 billion yen each quarter under a plan set in June 2025. Policymakers appear inclined to view rate hikes as the more flexible normalization tool, softening the taper stance to avoid the appearance of tightening on two fronts simultaneously. Bond market volatility linked to the Iran conflict, rising yields, and political concerns over Prime Minister Sanae Takaichi’s fiscal plans have all strengthened the case for caution on quantitative tightening.investinglive

BNY’s Bob Savage noted that BOJ officials increasingly see monthly purchases holding near 2.1 trillion yen, with the balance sheet shrinking naturally through maturing bonds rather than active reductions.mitrade