According to sources, the Bank of Japan is considering maintaining its current scale of bond purchases after the next fiscal year, effectively pausing the process of reducing its buying—a process that was meant to mark a turning point in its quantitative tightening (QT) plan.
However, the sources indicated this decision may remain pending due to divisions within the nine-member policy board: some members wish to focus on calming investor sentiment, while others believe it is necessary to steadily slow the pace of bond purchases to shrink the central bank's massive balance sheet.
At its meeting on June 15-16, the Bank of Japan will review its bond purchase reduction plan, which runs until March of next year, and formulate a new plan for the fiscal year 2027 and beyond.
Given that the current reduction plan is not expected to be adjusted, market participants are focused on whether the central bank will continue to reduce its monthly bond purchases after fiscal 2027 or maintain the current level of about 2.1 trillion yen ($13 billion) per month.
Four sources familiar with the Bank of Japan's thinking stated that, having made some progress in shrinking its enormous balance sheet, the central bank is leaning toward pausing the reduction in bond purchases. All sources requested anonymity as they are not authorized to speak publicly.
"The central bank's holdings will decline substantially just from the natural reduction of maturing bonds, so it has the capacity to pause the reduction in purchases," one of the sources said, a view shared by the other three.
They added that the Bank of Japan may stop formulating annual bond purchase reduction plans and instead adopt an open-ended approach, committing to monthly purchases of 2.1 trillion yen.
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