BOJ to Slow Bond Market Withdrawal After Standing Pat on Rates

Article content

Against that backdrop, the BOJ is still providing support for the economy through interest rates that remain well below the Group of Seven average. Even with a slower paring of its bond purchases, the BOJ’s plan for next year would still mean monthly purchases of around ¥2 trillion in broad terms by the first quarter of 2027. That’s roughly the same as the BOJ was buying to ensure market liquidity before it launched a massive monetary easing program in 2013.

Article content

Over the years, other central banks including the Federal Reserve have also fine tuned the pace of quantitative tightening. Compared with its global peers, the BOJ remains a long way behind in addressing the size of its stockpile of assets.

Article content

The scale of the BOJ’s balance sheet against Japan’s output stands at around 120%, far bigger than the corresponding ratios for the Fed and the European Central Bank.

Article content

The BOJ began to reduce its bond purchases in August, five months after ditching its negative interest rate and yield curve control program. Ueda has repeatedly said bond yields should be determined by the market, after the BOJ’s massive asset purchases and control of yields hampered market functionality.

Article content

Article content

Ueda will elaborate on today’s decision at a press briefing that starts around 3:30 p.m. 

Article content

With next year’s bond-buying plan now clarified, BOJ watchers’ focus will likely turn to the timing of the next rate hike given the ongoing strength of inflation. 

Article content

What Bloomberg Economics Says…

Article content

“Given recent hotter inflation readings, and a likely cost-push impulse from the jump in crude oil, we expect him to express concern about upside risks to consumer prices. He’s also likely to comment on risks to growth from US tariffs. We think his emphasis will be on the former — a sign that a rate hike remains on the horizon

Article content

— Taro Kimura, economist

Article content

For the full report, click here.

Article content

Japan’s key monthly inflation indicator has risen 2.9% on average over the past three years, well above target and a major jump from a 0.1% average in the preceding three-year period. The price of rice, the nation’s staple food, has nearly doubled of late, helping harden inflationary views among households.

Article content

BOJ officials see prices rising a little stronger than they previously expected, people familiar with the matter told Bloomberg earlier this month even before oil prices surged on deepening Middle East tensions. That’s a factor that may open the door to discussions over whether to raise interest rates if the impact from global trade tensions appears to be manageable.

Article content

Article content

A meeting between Trump and Ishiba on Monday in Canada failed to deliver a trade deal that can reduce the uncertainties on trade. But no deal was probably preferable to a bad deal for Ishiba ahead of the election. 

Article content

Still, if the two sides can reach agreement that may open the path for the central bank to mull its next rate move.

Article content

The BOJ noted domestic political dynamics, tariff negotiations and geopolitical tensions while being emphatic about inflation’s upward trajectory, said Shoki Omori, chief strategist at Mizuho Securities Co. “It appears the BOJ remains hesitant to abandon the possibility of another rate increase.”

Article content

—With assistance from Yoshiaki Nohara, Brett Miller and Erica Yokoyama.

Article content

(Updates market reaction, adds comments on decision.)

Article content