The Bank of Japan (BOJ) is engaging in consultations with market stakeholders to gauge sentiments before finalizing its plans to reduce bond purchases. Scheduled by the central bank’s financial markets department, three separate meetings will convene representatives from banks, securities firms, and institutional bond buyers. Each session, slated for an hour, will culminate in a conclusive meeting this Wednesday.
Sources familiar with the matter suggest that while specific numerical proposals are not anticipated from the BOJ, the sessions aim to solicit diverse market perspectives rather than endorse particular reduction strategies. Participants, wary of revealing candid opinions in front of competitors, may influence the tone of discussions.
Naomi Muguruma, chief fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co., noted, “The BOJ likely has some plans already. What it wants to show is a stance of proceeding cautiously by hosting the gatherings.”
The BOJ, historically dominant in Japan’s government debt market, accumulated over half of the country’s outstanding government bonds during its prolonged quantitative easing initiative. Now, as the BOJ deliberates on reducing its market presence, Governor Kazuo Ueda underscores the importance of careful planning and market feedback before finalizing decisions.
Yuuki Fukumoto, senior financial researcher at NLI Research Institute, emphasized, “For the BOJ, the key point is to hear and gather information on how much more bond-buying the market can take to assuage its concerns.”
Market analysts, referencing a Bloomberg survey, anticipate the BOJ initially decreasing monthly bond purchases from ¥6 trillion to around ¥5 trillion, with further reductions likely over the next two years. Governor Ueda indicated a substantial reduction is imminent, sparking speculation that the actual cuts might exceed market expectations.
Concerns about the yen’s depreciation prompted suggestions that a more substantial reduction could reinforce the BOJ’s commitment to quantitative tightening (QT) without signaling dovishness. However, some experts, including former BOJ executive director Atsushi Miyanoya, dismiss the notion that bond purchases will cease entirely.
Despite concluding large-scale easing in March, the BOJ continues to stabilize markets through substantial bond purchases, reflected in its ¥585 trillion bond portfolio—a pivotal factor shaping future market dynamics.
In summary, the BOJ’s engagement with market participants signals a pivotal juncture as it navigates reducing bond purchases, balancing economic stability with market expectations.
