Bank of Japan Maintains 0.5% Interest Rate, Slows Bond Purchase Cuts

The Bank of Japan (BOJ) has decided to maintain its short-term interest rate at 0.5%, aligning with market expectations. This decision was made during the two-day policy meeting that concluded on Tuesday. The BOJ's current plan, which was outlined in July, involves gradually reducing its bond purchases by approximately 400 billion yen per quarter. This reduction is aimed at halving the monthly buying amount over time. However, the central bank has indicated that it will slow down the pace of these bond purchase cuts in response to new global risks and uncertainties.

The BOJ's decision to keep interest rates steady was unanimous, reflecting the bank's cautious approach to monetary policy. The focus of the meeting was not only on maintaining stable interest rates but also on adjusting the bond purchase tapering plan. The bank is considering a slower reduction in its bond purchases, which is part of its quantitative tightening (QT) strategy. This adjustment is intended to provide more flexibility in managing the economy amid evolving global conditions.

The BOJ's plan for reducing the purchase amount of Japanese Government Bonds (JGBs) is designed to allow long-term interest rates to be determined by financial markets. By slowing the pace of bond purchase cuts, the BOJ aims to ensure that its monetary policy remains effective in supporting economic growth and stability. The bank's decision to maintain interest rates at 0.5% and adjust its bond purchase strategy underscores its commitment to a balanced approach to monetary policy, taking into account both domestic and international economic factors.

As part of its strategy, the bank plans to decrease the bond purchase amount by 200 billion yen each quarter starting April 2026. This move is expected to lead to reduced global liquidity, possibly affecting risk assets like cryptocurrencies. Market reactions include moderate impacts on Japan's sovereign debt pricing, with possible implications for the Japanese yen and risk asset volatility. Although there have been no direct statements from key market figures, the financial community is attentive to these changes.

This decision by the Bank of Japan marks a continued shift in its monetary policy, with potential implications for financial markets, particularly affecting bond markets and liquidity. The decision was made by Governor Kazuo Ueda and the Policy Board, with the bond reduction plan approved by an 8-1 vote. As Governor Kazuo Ueda stated, "The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5 percent. Regarding the reduction of its purchase of Japanese government bonds… the Bank will gradually reduce the amount of its monthly outright purchases."