Bank of Japan to slow bond purchase cuts amid growth concerns
The Bank of Japan (BOJ) announced Tuesday that it will slow the pace of reductions in its Japanese government bond (JGB) purchases beginning in April 2026.
This shift comes amid rising concerns over domestic and global growth prospects, despite continued inflationary pressures.
The central bank, following its scheduled monetary policy meeting, reaffirmed its existing plan to reduce JGB purchases by approximately ¥400 billion (US$2.76 billion) per quarter until the end of March 2026. This would bring the BOJ’s monthly purchases down from the current level of around ¥4.1 trillion to ¥3 trillion by that date.
However, beginning in the second quarter of fiscal 2026, the BOJ will ease the pace of these reductions to ¥200 billion per quarter. By March 2027, it targets a monthly purchase amount of around ¥2 trillion — a level HSBC Global Research described last week as a “natural” baseline, consistent with pre-2013 figures before the onset of the BOJ’s ultra-loose monetary policy.
In line with market expectations, the BOJ also held its benchmark interest rate steady at 0.5 percent. Economists polled by Reuters had widely anticipated the decision, particularly in light of emerging economic headwinds.
“The fact that the BOJ will not slow its JGB purchases until Q1 next year marks a minor victory for the Bank. Markets do not seem to need immediate help in managing the recent surge in yields on the long end,” said Krishna Bhimavarapu, APAC Economist at State Street Global Advisors.
Indeed, yields on 30-year JGBs spiked to multi-decade highs of 3.2 percent in late May before easing to about 2.93 percent at the time of the announcement. The 10-year JGB yield also rose 3 basis points Tuesday, closing at 1.491 percent. The Nikkei 225 stock index gained 0.55 percent following the decision, and the yen strengthened by 0.13 percent to 144.55 against the U.S. dollar.
BOJ Governor Kazuo Ueda has emphasized that the central bank’s policy normalization will remain cautious. Speaking to parliament last week, Ueda stated that rate hikes would only resume “once we have more conviction that underlying inflation will approach 2 percent or hover around that level.”
Japan’s inflation rate has remained stubbornly above the BOJ’s 2 percent target for more than three years. The country’s headline inflation for April stood at 3.6 percent, driven in part by a national rice shortage that led to surging prices and emergency stockpile releases by the government.
Yet, despite persistent inflation, Japan’s economic outlook has dimmed. GDP contracted by 0.2 percent in the first quarter of 2025, its first quarter-on-quarter decline in a year, largely due to weakening exports and a slowdown in overseas markets.
In its policy statement, the BOJ warned that: “Japan’s economic growth is likely to moderate,” citing weakening trade and declining corporate profits.
Still, it noted that accommodative financial conditions would provide a supportive buffer for the domestic economy.
The central bank also announced plans for an interim policy assessment at its June 2026 meeting to review progress and recalibrate if necessary. The BOJ reiterated that its bond purchase adjustments are aimed at enhancing “the functioning of the JGB markets in a manner that supports stability in the markets.”
