Bank of Japan to Trim Bond Buying, Keeps Rates Steady

The Bank of Japan announced on Friday that it would begin reducing its large bond purchases and will provide a detailed plan next month to decrease its nearly $5 trillion balance sheet, indicating a move towards unwinding its extensive monetary stimulus.

While the bank will continue to buy government bonds at the current rate of around 6 trillion yen ($38 billion) per month for now, it has decided to outline the specifics of its tapering plan for the next one to two years at its July meeting, as reported by Reuters.

The decision to slow down bond purchases was widely expected, but the lack of immediate details was seen by some investors as a sign that the central bank will proceed cautiously in adjusting its monetary policy in the future. This interpretation led to a decrease in the yen and Japanese bond yields.

Takayuki Miyajima, senior economist at Sony Financial Group, said, "Today's decision indicates that the BOJ is being very cautious about reducing bond purchases, which also suggests caution about raising rates. It is now less likely that the BOJ will raise rates in July."

The BOJ stated that it would gather opinions from market participants before finalizing the long-term tapering plan at its next meeting.

As expected, the BOJ unanimously maintained its short-term policy rate target within a range of 0-0.1%. The central bank also reiterated its view that the economy is continuing to recover moderately with strong consumption.

Following the announcement, the yield on the benchmark 10-year Japanese government bond (JGB) dropped to 0.915%, while the yen reached a more than one-month low of 158.255 against the dollar.

BOJ Governor Kazuo Ueda emphasized the importance of maintaining flexibility to ensure market stability while reducing bond purchases in a predictable manner.

He stated, "The size of reduction will likely be significant. But specific pace, framework and degree will be decided upon discussions with market participants."
Analysts are now focusing on whether recent economic developments will influence the BOJ's future decisions.