BOJ steady on rates, eyes gradual bond purchase cuts

June 17, 2025 (MLN): The Bank of Japan (BOJ) kept its benchmark interest rate unchanged at 0.5% and declared a plan to slow the pace of Japanese government bond (JGB) purchases starting April next year, as the country faces rising growth risks.

The central bank’s decision was in line with expectations from economists polled by Reuters.

The BOJ reiterated its earlier plan to reduce monthly JGB purchases by about 400 billion yen ($2.76 billion) per quarter to around 3 trillion yen by March 2026.

From April 2026 to March 2027, the BOJ will slow the pace of cuts further, reducing bond purchases by 200bn yen per quarter, with the goal of reaching a monthly purchase amount of approximately 2tr yen.

The BOJ said it would conduct another interim assessment during its June 2026 monetary policy meeting.

It explained that the move is aimed at improving “the functioning of the JGB markets in a manner that supports stability in the markets.”

During the quarter ending June 2025, the BOJ is expected to purchase about 4.1tr yen in JGBs each month.

Although the central bank is reducing its bond purchases, BOJ Governor Kazuo Ueda last week reportedly told Japan’s parliament that further rate hikes would only occur “once we have more conviction that underlying inflation will approach 2% or hover around that level.”

Japan’s inflation has remained above the BOJ’s 2% target for more than three years, with April’s headline inflation coming in at 3.5%, higher than expected.

The rise in prices has been partly driven by a rice shortage, prompting the government to release emergency stockpiles.

Meanwhile, Japan’s GDP contracted by 0.2% in the quarter ended March, compared to the previous period, as exports declined marking the first quarterly contraction in a year.

Copyright Mettis Link News