The Bank of Japan received a sizeable number of requests to maintain or slightly slow the pace of tapering in its bond purchases from fiscal year 2026 onward, minutes of a meeting between the bank and financial institutions showed on Monday.
Despite a recent spike in super-long yields, a significant number of bond market participants also urged the central bank to leave its existing bond taper plan through March 2026 unchanged.
The requests, made at a BOJ meeting with bond market participants on May 20-21, heighten the chance the central bank will proceed slowly in reducing its huge balance sheet.
The BOJ will conduct a review of its current taper plan and come up with a subsequent programme at its next policy meeting on June 16-17.
"From the viewpoint of predictability, the Bank should maintain the current pace of the reduction," one participant was quoted as saying in the minutes about the BOJ's plan for April 2026 onward.
The central bank has been slowing bond purchases since August last year to halve monthly buying to 3 trillion yen ($21 billion) by March 2026.
While the participants diverged on how much the BOJ should taper beyond April 2026, several called for reducing its monthly purchases to around 1 trillion yen to 2 trillion yen by the end of the new taper programme, the minutes showed.
One person called for eventually reducing purchases to zero, while another called for maintaining the current 3-trillion-yen monthly pace "for a while".
The new programme from April 2026 should display the BOJ's taper plan for a full year, one participant was also quoted as saying.
The BOJ's taper review comes at a delicate time. Yields on super-long Japanese government bonds (JGB) soared to all-time highs last month on weak investor demand, as political calls for big fiscal spending flare up ahead of an upper house election slated for July.
Many bond market participants warned of declining market liquidity for super-long bonds, with some calling for a response by the BOJ, according to the minutes.
"The Bank should consider making flexible responses for this zone," such as by suspending reductions in its bond buying or ramping up purchases of super-long bonds, the minutes showed.
Some called for making tweaks to the way the BOJ conducts its bond-buying operations so that it can more flexibly adjust the amount of super-long JGBs purchases.
Others, however, warned the BOJ against responding too much to swings in super-long yields.
"The deterioration in supply and demand conditions in the super-long-term zone is due to structural factors," such as weak investor demand relative to the size of issuance, one participant was quoted as saying. "There is thus limited room for the Bank to address the root cause."
The BOJ has lagged well behind global counterparts in whittling down crisis-era stimulus, having only exited last year a decade-long, massive stimulus aimed at pulling the economy out of stagnation. It also ended negative interest rates last year, though short-term borrowing costs are only 0.5%.
The central bank still owns roughly half of outstanding JGBs.
($1 = 142.8500 yen)
