BOJ group debates JGB purchase reduction pace
The Bank of Japan's Bond Market Group held its 24th round of meetings on May 21-22, 2026. Participants discussed recent JGB market trends, the current reduction plan for JGB purchases, and future purchase amounts.
Rising rates, improving liquidity
Interest rates have risen across the yield curve since March, driven by expectations of continued policy rate hikes and global increases, alongside inflation concerns exacerbated by Middle East tension.
Long- and super-long-term rates saw a fast pace of increase in mid-May, influenced by speculation over future monetary and fiscal policies.
The Bank of Japan's (BOJ) gradual and predictable reduction of JGB purchases has not caused market disruptions, contributing to improved liquidity and functioning.
Interest rates are now moving more freely, reflecting economic and financial conditions, and tight supply-demand conditions, especially for cheapest-to-deliver issues, have eased.
Despite these improvements, liquidity and market functioning remain incomplete in the medium- to long-term zones where the BOJ holds a significant share.
Super-long-term fluctuations are also prone to amplification due to low liquidity for off-the-run issues and the growing presence of foreign investors.
Divided views on future purchase pace
Participants offered diverse views on the BOJ's current JGB purchase reduction plan.
Many advocated maintaining the predictable pace for market stability, cautioning against slowing or accelerating it due to potential market signals or volatility.
Others, however, argued the slow pace hinders market functioning, suggesting an acceleration to 400 billion yen per calendar quarter from July 2026.
Regarding purchases from April 2027, opinions varied significantly.
Some saw no need to reduce monthly purchases from 2.1 trillion yen, citing stable interest rate formation.
Conversely, others proposed further reductions, targeting 1 to 2 trillion yen or even zero, to fully restore market functioning.
Concerns were also raised about potential money market impact if the BOJ's balance sheet shrinks.
Navigating a complex exit
The minutes reveal a significant divergence among market participants regarding the optimal pace and scale of the Bank of Japan's JGB purchase reductions.
While some advocate for predictability, others push for acceleration to restore market functioning, or even a slowdown to prevent money market stress.
This reflects the inherent challenge for the BOJ in unwinding its massive balance sheet without causing undue volatility or liquidity issues.