Amid concerns over spending and inflation pushing yields to multi-year highs, the Bank of Japan will consult market participants this week on the pace of reducing its bond purchases.
The central bank will hold meetings with banks, securities firms, and institutional investors on Thursday and Friday, respectively. The feedback will inform the bank's review of its bond-buying program at the policy meeting on June 15-16.
These discussions come as global bond markets face widespread selling pressure, with rising oil prices due to conflicts in the Middle East fueling inflation expectations. The sharp rise in Japanese government bond yields is particularly concerning for global markets, given that volatility in Tokyo often spills over into European bond and U.S. Treasury trading.
Japan's bond market is already under pressure as the Bank of Japan, under Governor Kazuo Ueda, pursues policy normalization and gradually scales back its massive bond-buying program. Additionally, concerns over Prime Minister Sanae Takaichi's spending plans have added to the upward momentum in yields. Just one month after the annual budget passed the Diet, Takaichi's shifting stance on supplementary budgets has brought these plans under renewed scrutiny.
While the Bank of Japan has been scaling back purchases, it still plans to buy about 2.7 trillion yen ($170 billion) of bonds this month. However, under the current annual plan, the central bank is committed to reducing purchases by about 200 billion yen per quarter through March 2027.
"Given heightened volatility in long-term yields, the Bank of Japan is likely to reassess the pace of tapering," said Taro Kimura, senior Japan economist at Bloomberg Economics. "Slowing the pace of tapering could help curb yields by compressing term premiums."
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