Markets brace for cut to BOJ’s super-long bond buying.

The Bank of Japan could take another key step toward diminishing its huge presence in the bond market next week, when it releases its bond-buying plan for the second quarter that may include a cut in the size of super-long bond purchases, analysts say.

Under a quantitative tightening (QT) programme laid out in July, the BOJ has been slowing bond purchases by around 400 billion yen ($2.65 billion) per quarter to halve monthly purchases to 3 trillion yen by March 2026.

But it has refrained from reducing purchases of super-long government bonds as it focused on tapering other maturities, particularly the benchmark 10-year notes it has amassed during a massive stimulus programme that ended in March last year.

Reducing purchases of super-long bonds would reinforce the BOJ’s resolve to continue policy normalisation by phasing out remnants of a decade-long stimulus programme undertaken by former Governor Haruhiko Kuroda since 2013 to break Japan out of deflation and economic stagnation.

In the current quarter, the BOJ buys 4.5 trillion yen worth of bonds per month, of which 450 billion yen are those with maturity of more than 10 years and up to 25 years – categorised as super-long bonds.

The BOJ last year pulled short-term rates out of negative territory and ended a policy capping bond yields around zero, on the view Japan was on the cusp of durably hitting its 2% inflation target.

It raised its short-term policy rate to 0.5% in January and signalled readiness to keep hiking rates if economic and price developments move in line with its forecasts.

Source: Globalbankingandfinance