The Bank of Japan (BOJ) is considering the possibility of slowing the pace of government bond purchase reductions starting April 2026 due to rising concerns over increasing yields on long-term bonds.
Bond Market Situation
Since last summer, the Bank of Japan has reduced its buying of Japanese government bonds by 400 billion yen (approximately 2.8 billion dollars) every three months. This decision was made to counteract the effects of quantitative tightening. However, due to volatility in the bond market, the BOJ’s policy board plans to discuss slowing down the process by half to 200 billion yen per quarter. Last month, the yield on 30-year bonds hit a record high of 3.2%.
Proposed BOJ Changes
Although bond yields have since dropped to about 2.9%, many experts see the BOJ in a difficult position due to its slowdown in long-term bond buying. A meeting of the policy board is scheduled for this weekend, where most members are expected to support a tapering slowdown. The current bond buying plan is set to remain in place until March of next year, with the policy rate expected to remain steady at 0.5%.
Economic Consequences
The BOJ began unprecedented quantitative easing in 2013 to pump money into the economy through massive purchases of government bonds. In September 2016, yield curve control was added to its monetary tools. In March 2024, the BOJ began adjusting its policy by reducing monthly bond purchases. Some investors believe that the tapering of bond purchases is contributing to the rise in yields. Economists note that tapering will lead to a slower reduction in prices. At the same time, the BOJ aims to keep interest rates low to prevent market instability.
The measures taken by the Bank of Japan to slow down bond purchase reductions could significantly impact not only the financial market but also the overall economic stability in the country.
