The Bank of Japan has announced plans to slow down the pace of cuts in its government bonds (JGB) purchases from April 2026. This comes amid concerns over the rise in the yield on superlong bonds. Since last summer, the central bank has slowed down the buying of Japanese government bonds by 400 billion yen ($2.8 billion) every three months. This was meant to counteract the effects of quantitative tightening.
Due to the volatility in the bond market, the Bank’s policy board wants to discuss slowing down the process by half to 200 billion yen per quarter. The yield on 30-year bonds hit a record high of 3.2% last month. This was due to a buyers’ strike that is still going on among local life insurers. Even though they dropped to about 2.9%, experts still see the Bank of Japan in a tough spot because it has been slowing down its long-term bond-buying program. Meanwhile, the current plan for buying JGB will stay in place until March of next year. The bank is expected to hold the policy rate steady at 0.5%.
Bank of Japan increases yields by tapering bond purchases
The BOJ began quantitative easing in 2013 to pump money into the economy with massive JGB purchases. In September 2016, it added yield curve control to its tools. By buying bonds, long-term rates were kept low. In March 2024, the bank adjusted its policy, halting purchases of bonds as a policy tool, and started buying less each month in August of that year.
In July 2024, the amount paid for things was 5.7 trillion yen monthly. Beginning in August 2024, the Bank of Japan cut back on buying JGB. In January 2026, it will drop to 2.9 trillion yen. If the cut is made to 200 billion yen every three months starting in April 2026, the amount bought will be about 2.1 trillion yen every month from January 2027. However, some investors in the market believe that the tapering of bond purchases by the BOJ is contributing to the yield rise.
“Tapering bond purchases is now on autopilot, and if there is any hawkish action going forward it is likely to be in policy rate settings,” said Katsuhiko Aiba, Citi Japan economist.
Economists at Bank of America said that one of the most important things to watch for is whether the Bank of Japan makes it clear that it plans to do another interim review in 2026 and whether it expresses its view on the appropriate “terminal” purchase amount of JGBs, or the amount it buys some years in the future. According to Goldman Sachs economists, price cuts will happen slowly over the next year until they reach 2 trillion yen monthly.