By Kevin Buckland
TOKYO (Reuters) – The Bank of Japan said on Monday it will reduce purchases of super-long bonds for the first time since embarking on a quantitative tightening (QT) plan last year, taking another key step towards diminishing its huge presence in the bond market.
The cut to longer-dated bond buying underscores the central bank’s commitment to phase out the stimulus programme that former Governor Haruhiko Kuroda began in 2013 to break Japan out of deflation and economic stagnation.
Under its bond-buying plan for April-June, the BOJ said it will slash its monthly Japanese government bond (JGB) buying by another 395 billion yen ($2.65 billion) from April. That brings the monthly total of the bank’s purchases down to about 4.105 trillion yen.
The BOJ will buy a total of 405 billion yen of bonds with 10-25 years left to maturity per month in the second quarter, down from 450 billion yen previously. It kept the level for bonds with more than 25 years to maturity unchanged.
Shoki Omori, chief desk strategist at Mizuho Securities, described the move as “a cautious adjustment in the long end by the BOJ (that) implies that the BOJ is concerned about the long-end market conditions, where we are lacking pure buyers such as lifers.”
“Despite the technical adjustment by the BOJ in the operations, it does not guarantee decent support in the long end of the curve.”
The central bank also trimmed buying of debt with less than a year to maturity for the first time, to 100 billion yen monthly from 150 billion yen. Monthly purchases for other maturity baskets were each reduced by 100 billion yen per month.
Under a QT programme laid out in July, the BOJ has been slowing bond purchases by around 400 billion yen per quarter to halve monthly purchases to 3 trillion yen by March 2026.
But it had refrained from reducing purchases of super-long bonds as it focused on tapering other maturities, particularly the benchmark 10-year notes it amassed during a massive stimulus programme that ended in March last year.
The decision comes ahead of the BOJ’s scheduled review of its existing QT programme in June, when it will also announce a bond taper plan for April 2026 onwards.
The BOJ last year pulled short-term rates out of negative territory and ended a policy capping bond yields around zero, on the view Japan was on the cusp of durably hitting its 2% inflation target.
It raised its short-term policy rate to 0.5% in January and signalled readiness to keep hiking rates if economic and price developments move in line with its forecasts.
Aside from raising short-term rates, the BOJ is seeking to gradually reduce the size of its huge balance sheet. It owns around half of the outstanding JGBs in the market with its bond holdings now about 600 trillion yen – roughly the size of Japan’s gross domestic product (GDP).
($1 = 149.1900 yen)
(Reporting by Kevin Buckland; additional reporting by Leika Kihara; Editing by Peter Graff, Aidan Lewis, William Maclean and Kate Mayberry)
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