Bank of Japan Governor Hints at Further Bond Purchase Cuts

Bank of Japan Governor Ueda Kazuo has hinted at the possibility of further reducing the scale of bond purchases, suggesting that the central bank may continue to gradually decrease its bond buying even after the current program expires in March. This indication comes as the Bank of Japan prepares to announce its bond purchase plans for the next fiscal year, which is set to begin in April.

During his testimony to the Diet, Ueda summarized the views expressed by bond market participants during a meeting held by the Bank of Japan last month. Many participants suggested that it would be appropriate to continue reducing the scale of bond purchases while balancing predictability and flexibility. Ueda also mentioned that the Bank of Japan plans to maintain its current policy of reducing bond purchases by 400 billion yen (2.8 billion USD) per quarter until the end of March, and that there are limited calls to modify this plan.

Ueda's remarks reflect the Bank of Japan's assessment that the market has generally accepted the idea of further reducing bond purchases since the central bank began quantitative tightening last summer. However, the specific details of the bond purchase plan for the next fiscal year have not been disclosed, and Ueda noted that there are various opinions on the matter.

The governor's comments come as the Bank of Japan, the largest holder of Japanese government bonds, faces scrutiny over how it will unwind its massive bond-buying program after more than a decade of aggressive monetary easing. The 30-year Japanese government bond yield reached a historic high last month, indicating an imbalance in the supply and demand for long-term bonds. This has drawn attention to the Bank of Japan's upcoming decision on its bond purchase plan, which will be announced after a two-day policy meeting on June 17.

Ueda's statements underscore the Bank of Japan's commitment to a cautious and gradual approach to tightening monetary policy. By indicating a willingness to continue reducing bond purchases, the central bank aims to ensure economic stability and growth while managing inflation expectations. This approach is designed to avoid sudden shocks to the financial system and allow the economy to adjust to a more normalized monetary environment.

As global economic conditions remain uncertain, with factors such as trade tensions and geopolitical risks adding to the complexity of monetary policy decisions, Ueda's cautious approach reflects the Bank of Japan's dedication to maintaining stability. The central bank is navigating a delicate balance between supporting economic growth and preventing overheating, with the goal of achieving sustainable growth in the face of ongoing challenges.