Bank of Japan Considers Slowing Bond Tapering Amid Market Volatility
BOJ may slow or pause bond taper at June meeting, analysts say
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The Bank of Japan (BOJ) may slow or pause its bond purchase tapering at the upcoming June 15-16 policy meeting due to rising yields and market volatility. Analysts suggest three options: a full pause, maintaining the current reduction pace, or a modest slowdown. The decision will impact Japan's bond markets and could have broader implications for global fixed income.
- 01The BOJ currently holds approximately 500 trillion yen in bonds, representing about 49% of all Japanese government bonds outstanding.
- 02Three potential options for tapering include a full pause at 2 trillion yen per month, maintaining a 200 billion yen reduction, or slowing to 100 billion yen per quarter.
- 03Analysts from Mitsubishi UFJ Morgan Stanley Securities favor a full pause, while those at Sumitomo Mitsui Trust Asset Management lean towards a slowdown.
- 04The BOJ's decision is influenced by meetings with bond investors, which are crucial for gauging market sentiment.
- 05A simultaneous rate hike and taper slowdown could signal mixed monetary policy, balancing tighter short rates with looser liquidity conditions.
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The Bank of Japan (BOJ) is contemplating whether to slow or pause its bond purchase tapering during the policy meeting scheduled for June 15-16, 2023. This consideration arises amid rising yields and increased market volatility, complicating the central bank's plans for balance sheet normalization. Currently, the BOJ holds about 500 trillion yen in bonds, which constitutes roughly 49% of all outstanding Japanese government bonds. Analysts have outlined three potential approaches for the BOJ: a complete pause in tapering, maintaining the existing reduction pace of 200 billion yen per quarter, or a gradual slowdown to 100 billion yen per quarter. Analysts are divided, with some favoring a full pause to prioritize market stability, while others predict a more modest adjustment. The BOJ's decisions are critical not only for Japan's bond markets but also for global fixed income, given Japan's significant holdings of foreign bonds. The upcoming meetings with bond investors are expected to provide valuable insights that will inform the BOJ's final decision, as any indication of a taper slowdown could alleviate pressure on Japanese government bonds, supporting prices and capping yield increases.
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If the BOJ pauses or slows its tapering, it could stabilize Japanese government bond markets, affecting yields and prices.
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