BoJ Considers Tapering Bond Purchases

The Bank of Japan (BOJ) is considering a significant reduction in its bond-buying program, responding to market participants’ calls to cut its current pace of purchases by roughly half. This feedback was gathered through a BOJ survey of bond market participants, released on Tuesday.

The central bank plans to unveil a detailed bond tapering strategy at its policy meeting on July 30-31, covering a period of one to two years. This move aligns with the BOJ’s decision in March to end eight years of negative interest rates, marking a shift towards phasing out its massive stimulus measures.

Survey respondents suggested various approaches to tapering. Some recommended reducing monthly government bond purchases to 2-3 trillion yen ($12.4-$18.7 billion) from the current 6 trillion yen. Others proposed a more gradual reduction to 4 trillion yen per month or an initial cut of 1 trillion yen before larger reductions. A few respondents advocated for a more rapid taper, suggesting monthly purchases of just 1-2 trillion yen, and one respondent urged the BOJ to outline a plan to eventually cease bond purchases altogether.

The survey highlighted differing opinions on the speed of tapering, with some market players advocating for a “set, swift pace” and others preferring a gradual reduction over two years.

These findings were shared as part of the BOJ’s briefing material for a two-day meeting with bond market participants that began on Tuesday. The meeting’s outcome will inform the final tapering plan, which BOJ Governor Kazuo Ueda has described as “sizeable,” though specific details have yet to be disclosed.

A Reuters survey earlier this month indicated that Japanese bond market participants expect the BOJ to reduce its monthly bond buying to an average of 4.65 trillion yen in the first year and 3.55 trillion yen in the second year.

Despite maintaining near-zero interest rates, the BOJ lags behind other central banks in reducing crisis-era monetary support, focusing instead on supporting Japan’s fragile economy. Over the past decade, the BOJ’s aggressive bond-buying strategy has expanded its holdings to 576 trillion yen, representing roughly half of all Japanese government bonds (JGB) in the market.