Lead
The Bank of Japan is weighing a suspension of its planned reductions in government bond purchases beginning in April 2027, sources said, a move that would pause the central bank's gradual quantitative tightening program. The issue is expected to provoke a close decision as board members are divided between those prioritizing market stability and others pushing for a steady downsizing of the BOJ's bond holdings.
Upcoming meeting and the immediate focus
At its meeting on June 15 to 16, the BOJ will review the existing taper schedule that runs through March next year and outline a fresh approach for fiscal 2027 and beyond. Although no changes are expected to the current plan covering the near term, market participants are closely watching whether the bank will resume reductions in monthly bond purchases after fiscal 2027 or decide to stop cutting further and maintain purchases at roughly 2.1 trillion yen per month for the January-March 2027 quarter, as set under the current framework.
Sources and rationale cited
Four people with knowledge of the matter told reporters that the central bank is leaning toward pausing the taper. These sources, who spoke on the condition of anonymity because they were not authorised to speak publicly, argued the BOJ can afford such a pause because its holdings will decline substantially through the natural runoff of maturing bonds without further active reductions.
"The BOJ can afford to pause its taper as its holdings will fall significantly just with the runoff of maturing bonds," one source said. The other three sources echoed that view.
Those same sources said the BOJ could stop publishing an annual taper schedule and instead adopt an open-ended approach that effectively commits the bank to purchasing at a rate of 2.1 trillion yen per month.
Monetary policy context
Alongside the debate over quantitative tightening, the BOJ is widely expected to raise its short-term policy rate to 1% from 0.75% at next week’s meeting.
Board split and balance-sheet reduction
The nine-member board appears split on the best path forward. Some members have stressed the importance of calming investor concerns and preventing excessive volatility in government bond markets, while others have argued for a steady and predictable reduction in asset purchases to bring down the BOJ’s very large balance sheet.
Under Governor Kazuo Ueda, the BOJ has been cutting its holdings since 2024. The current mechanism trims monthly buying by 200 billion yen every quarter. The bank’s total government bond holdings are reported to be around 530 trillion yen.
The BOJ still owns 49% of all Japanese government bonds sold in the market, a share that leaves its moves highly influential on yields and on the cost of funding Japan’s public debt. Whether the bank tapers or not, maturing JGBs are expected to cause the BOJ’s holdings to fall by as much as 50 trillion yen a year. The holdings have already declined by nearly 20% from their peak in late 2023.
Stability concerns and internal warnings
Officials have stressed the need to reduce the BOJ’s dominance in the JGB market without triggering sharp fluctuations in yields. Governor Ueda said last week that the bank must be mindful of maintaining bond market stability. In February, board member Hajime Takata, who has experience as a bond strategist, warned that reducing the BOJ’s purchases could strain a market already coping with heavy supply.
Not all board members favour a pause. Some have advocated a steady path toward shrinking the balance sheet. Naoki Tamura, a board member with a banking background, voted against the BOJ’s decision last June to cut bond buying by 200 billion yen per quarter for fiscal 2026; he had instead called for a reduction of 400 billion yen. In a speech earlier this month, board member Junko Koeda said the BOJ should "proceed steadily" with normalizing its balance sheet and identified the bank’s large bond holdings as an essential factor in that work.
Implications and constraints
The debate highlights the tension the BOJ faces: the need to withdraw extraordinary monetary accommodation and reduce its footprint in the JGB market, while avoiding disruptions that could unsettle yields and complicate funding conditions. Rising public debt and volatile yields have made this balancing act more challenging for central banks as they unwind balance sheets expanded by years of asset purchases.
Conclusion
The BOJ’s June meeting will therefore be closely watched for both its rate decision and its signal on the pace of quantitative tightening beyond fiscal 2027. Any decision to pause tapering would lean on the expected natural runoff of maturing JGBs to reduce holdings, while a decision to continue scheduled cuts would underscore a board preference for a steadier, more mechanical reduction in the central bank’s balance sheet.
Exchange rate reference
The article uses an exchange rate of $1 = 160.2000 yen for reference.