The Bank of Japan may slow or pause its bond purchase tapering at the June policy meeting, analysts say, as rising yields and market volatility complicate its balance sheet normalisation plans.

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Summary:
According to Reuters, citing analysts and sources familiar with BOJ thinking:

• The BOJ is considering whether to slow or pause its quantitative tightening programme at the June 15-16 policy meeting, with no decision yet made on the exact pace of tapering for fiscal 2027
• Three options are seen on the table: a full pause at the current buying pace of around 2 trillion yen per month, maintaining the existing reduction of 200 billion yen per quarter, or a more modest slowdown to 100 billion yen per quarter
• The BOJ is widely expected to raise short-term interest rates at the June meeting and may opt to soften its taper stance simultaneously to avoid the appearance of tightening on two fronts at once
• The BOJ holds around 49% of all outstanding Japanese government bonds, and meetings with bond investors this week are seen as a key input into the final taper decision
• Analysts at Mitsubishi UFJ Morgan Stanley Securities favour a full taper pause given current bond market instability, while analysts at Sumitomo Mitsui Trust Asset Management see a slowdown to 100 billion yen per quarter as more likely
• The BOJ sees no immediate need for emergency bond-buying operations, with sources noting that yield moves reflecting fiscal and monetary fundamentals are a sign of proper market functioning rather than dysfunction

The Bank of Japan is weighing whether to slow or suspend its bond purchase tapering programme at next month’s policy meeting, analysts say, as rising Japanese government bond yields and broader market volatility put pressure on its plans to normalise a balance sheet built up over decades of ultra-loose monetary policy.

The BOJ has been gradually reducing its monthly bond purchases since 2024 under Governor Kazuo Ueda, trimming buying by around 200 billion yen each quarter as part of a broader push to unwind extraordinary stimulus. The central bank currently holds around 500 trillion yen in bonds, equivalent to roughly 49% of all Japanese government bonds outstanding, giving its decisions on the pace of reduction an outsized influence on yields and on the cost of servicing Japan’s substantial national debt.

Analysts identify three paths available to the BOJ at its June 15-16 meeting. It could pause the taper entirely, holding monthly purchases steady at around 2 trillion yen, a move that would signal its priority is market stability. It could maintain the existing reduction pace of 200 billion yen per quarter, reinforcing its commitment to steady normalisation. Or it could seek a middle course, slowing the reduction to 100 billion yen per quarter. Analysts are divided on which option the BOJ will choose, with some favouring a full pause given current market conditions and others expecting a more modest adjustment.

The decision is complicated by the likelihood that the BOJ will also raise short-term interest rates at the same meeting. A simultaneous rate hike and continued aggressive taper would risk sending a double-tightening signal that policymakers appear keen to avoid. Slowing the taper while raising rates would allow the BOJ to tighten its primary monetary lever while offering bond markets some reassurance on liquidity conditions.

Meetings with bond market investors scheduled for this week are seen as a critical input into the final decision, with the BOJ using the sessions to gauge the market’s preferred pace of adjustment before committing to a course of action.