PORTALBERITA.CO.ID - The Bank of Japan (BOJ) is reportedly contemplating a suspension of its planned reductions in government bond purchases, potentially starting from April 2027, according to sources familiar with the matter, as reported by Businesstimes.
This possible pause in the quantitative tightening strategy is intended to foster greater stability within the financial markets as the central bank navigates monetary policy normalization. The nine-member board, however, remains divided on the optimal approach moving forward.
Currently, the BOJ holds an immense portfolio of 530 trillion yen in Japanese government bonds, representing nearly half (49 percent) of the total market outstanding. Since 2024, Governor Kazuo Ueda has overseen a gradual trimming of monthly purchases by 200 billion yen each quarter.
The central bank is scheduled to review its existing bond taper plan, which runs through March of next year, during its upcoming policy meeting from June 15 to 16, where the framework for fiscal 2027 and beyond will be established.
One faction within the board favors halting the active taper because the balance sheet will naturally shrink significantly due to the runoff of maturing bonds, potentially reducing assets by as much as 50 trillion yen annually. "The BOJ can afford to pause its taper as its holdings will fall significantly just with the runoff of maturing bonds," stated an anonymous source.
Conversely, other board members are pushing for a continuous, steady reduction in purchases to ensure a complete normalization of the central bank's monetary stance. This group views sustained balance sheet reduction as crucial for achieving long-term policy goals.
Beyond the tapering debate, the BOJ is widely expected to implement another interest rate adjustment next week, raising its short-term policy rate from 0.75 percent to 1 percent. Governor Ueda has stressed the necessity of maintaining market equilibrium during this transition period.
"The BOJ must be mindful of maintaining bond market stability," said Kazuo Ueda, Governor of the Bank of Japan.
Concerns have also been raised regarding the impact of reduced central bank activity on market liquidity, particularly given the already large supply of government debt available. Former bond strategist and current board member Hajime Takata previously voiced apprehension about this dynamic.
