BoJ to cut super-long bond purchases for first time in tapering plan

The Bank of Japan said on Monday it would reduce its purchases of ultra-long bonds for the first time since launching its quantitative tightening (QT) program last year, taking a major step toward reducing its outsize influence in the bond market.

The reduction in long-term bond purchases underscores the BOJ’s commitment to phasing out a stimulus program started by former governor Haruhiko Kuroda in 2013 to help pull Japan out of deflation and economic stagnation.

The Bank of Japan (BoJ) said it would cut its monthly purchases of Japanese government bonds by another 395 billion yen ($2.65 billion) from April under its April-June bond-buying program. That brings the central bank’s total monthly purchases down to about 4.1,050 trillion yen.

The BOJ will buy 10-25 year bonds totaling 405 billion yen per month in the second quarter, down from 450 billion yen previously. The interest rate level for bonds with a maturity of more than 25 years remains unchanged.

Shoki Omori, chief strategist at Mizuho Securities, described the move as "a cautious adjustment by the BOJ toward long-term bonds, which means the BOJ is concerned about long-term market conditions as we lack pure buyers such as lifelong investors."

The Bank of Japan also cut its purchases of bonds maturing within a year for the first time, from 150 billion yen per month to 100 billion yen. Monthly purchases of other maturity basket bonds were reduced by 100 billion yen each.

Under a quantitative easing program outlined in July, the Bank of Japan will slow its bond purchases by about 400 billion yen per quarter, halving monthly bond purchases to 3 trillion yen by March 2026.

But rather than reducing purchases of super-long bonds, the central bank has focused on scaling back purchases of bonds of other maturities, particularly the benchmark 10-year bond that it accumulated during a massive stimulus program that ended in March last year.

The decision comes ahead of the BOJ’s scheduled review of its existing quantitative easing program in June, when it is also due to announce a plan to reduce its bond yields from April 2026.

The Bank of Japan cut short-term interest rates from negative territory last year and ended a policy of capping bond yields around zero as it believed Japan was on the verge of achieving its 2% inflation target on a sustained basis.

The central bank raised its short-term policy rate to 0.5% in January and has said it is ready to raise rates further if the economy and prices evolve in line with its forecasts.

In addition to raising short-term interest rates, the Bank of Japan is also seeking to gradually reduce the size of its massive balance sheet. It owns about half of the outstanding Japanese government bonds in the market, and its bond holdings currently stand at around 600 trillion yen - roughly the size of Japan's gross domestic product (GDP).