BNY’s Bob Savage reports that Bank of Japan (BoJ) officials are considering pausing further reductions in JGB purchases after March 2027, keeping buying near ¥2.1tn as the balance sheet shrinks via maturities. The June meeting is expected to deliver a rate hike to 1.0%. This evolving stance, alongside firmer Japanese money supply, frames the backdrop for USD/JPY and JGB yields.

Policy normalization and JGB purchases

"Bank of Japan (BoJ) officials are increasingly leaning toward pausing further reductions in bond purchases after March 2027, reflecting growing concern about market stability as the central bank unwinds years of quantitative easing."

"Sources indicate policymakers may maintain monthly bond purchases at around ¥2.1tn rather than continue tapering, arguing that the BoJ’s balance sheet will shrink substantially through the natural runoff of maturing bonds."

"The debate comes ahead of the June 15–16 meeting, where the BoJ is also widely expected to raise its policy rate to 1.0% from 0.75%. "

"The discussion highlights the tension between reducing the BoJ’s dominant presence in the government bond market and avoiding excessive volatility in yields as Japan continues its monetary policy normalization."

"Japan’s money supply growth firmed in May. M2 rose 2.5% y/y in May, up from 2.3% y/y in April, while M3 increased 1.7% y/y, unchanged from April."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)