Inside BOJ’s Taper Talks: Market signals & policy shifts ahead
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Market Sentiment on BOJ's Tapering Pace
A significant number of market participants have urged the Bank of Japan to maintain or only slightly slow the pace of its bond tapering from fiscal year 2026 onward. This comes amid a recent spike in super-long bond yields, which has raised concerns about the pace and scale of tapering. These requests suggest the central bank is likely to proceed cautiously with its balance sheet reduction to avoid disrupting market stability. (Source: Reuters)
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Existing Taper Plan (Through March 2026)
The BOJ has been gradually reducing its bond purchases since August last year, with the aim of cutting its monthly buying to ¥3 trillion by March 2026. Despite this schedule, many participants at the recent meeting emphasised that the current plan should remain unchanged, stressing the importance of predictability and consistency for the market.
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Diverging Views for Post-April 2026
Opinions varied on the path forward beyond April 2026. Some participants proposed tapering bond purchases further to around ¥1 to ¥2 trillion per month by the end of the new program. However, others argued that the current pace of ¥3 trillion should be maintained for a while, and one participant even suggested reducing purchases to zero eventually.
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Call for a Transparent Annual Plan
There was also a call for greater clarity and structure in the tapering roadmap. One participant recommended that the BOJ present a full-year plan starting from April 2026. Such a move would provide the market with better visibility and allow investors to plan more effectively.
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Super-Long JGB Concerns
Super-long Japanese government bond (JGB) yields soared to record highs last month, largely due to weak investor demand and political calls for increased fiscal spending ahead of the upcoming upper house election in July. These developments have intensified scrutiny on the BOJ's tapering approach.
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Market Liquidity and BOJ Response
Many participants raised concerns about declining liquidity in the super-long bond segment. Some suggested that the BOJ should consider temporarily suspending its tapering in this zone or even increasing its bond purchases to stabilise conditions. Flexibility in the way the central bank conducts these operations was a recurring theme in the discussion.
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Structural Challenges
However, not all participants agreed on the need for aggressive intervention. Some warned that the issues facing the super-long segment stem from deeper structural factors, such as low investor appetite relative to issuance size. They argued that the BOJ has limited ability to address these root causes through monetary policy alone.
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BOJ's Policy Backdrop
The BOJ remains behind its global peers in terms of unwinding crisis-era stimulus. It only ended its decade-long ultra-easy policy last year, including its negative interest rate regime. Even now, short-term interest rates are at just 0.5%, and the central bank continues to hold about half of all outstanding JGBs.
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Upcoming Decision
All eyes are now on the BOJ’s next policy meeting scheduled for June 16–17, 2025, where the central bank is expected to review its current tapering strategy and unveil a new program for fiscal 2026. Market participants are hoping for a carefully calibrated plan that balances the need for normalisation with financial market stability.
(Disclaimer: This slideshow has been sourced from Reuters)
(Disclaimer: This slideshow has been sourced from Reuters)