BOJ Vows to Keep Tapering Bond Buying Despite Rise in Yields

 BOJ Vows to Keep Tapering Bond Buying Despite Rise in Yields

The Bank of Japan (BOJ) remains committed to tapering its government bond purchases, despite recent increases in bond yields, according to BOJ Deputy Governor Shinichi Uchida. He emphasized that the BOJ's substantial bond holdings continue to provide strong stimulus to the Japanese economy, reinforcing the central bank's efforts to support economic recovery.

Key Points:

• Uchida stated that Japan's economy is recovering moderately, though some weaknesses persist, and inflation is gradually moving toward the BOJ’s 2% target.
• He reaffirmed the BOJ’s policy stance, asserting that the recent rise in government bond yields reflects market expectations concerning economic conditions and price trends, as well as developments overseas.
• Despite the uptick in yields, the BOJ is determined to continue its bond-buying tapering plan, which began in July 2024. This policy is aimed at gradually reducing the central bank's vast holdings of Japanese government bonds (JGBs).
• The BOJ also plans to raise short-term interest rates further if economic conditions and inflationary pressures align with its projections. In January, the BOJ raised short-term interest rates to 0.5%, up from 0.25%.

Bond Market Reactions:

• Following expectations of a near-term rate hike, the yield on the 10-year JGB rose on Thursday, but it fell by 1.5 basis points to 1.375% on Friday.
• Market participants are now anticipating another rate hike later this year, with many economists forecasting a rise to 0.75% during the third quarter of 2025.

Uchida also remarked that the BOJ's huge bond holdings are exerting a continued monetary easing effect on the economy, a point that may help counterbalance the recent rise in yields. However, he acknowledged that the movement of bond yields is ultimately determined by market forces.

Looking ahead, the BOJ will review its policy in mid-March. Analysts expect further developments in the bank's approach as it navigates the challenges of rising yields and global economic uncertainties.

Outlook: While Japan's economy is showing signs of gradual recovery, the central bank faces ongoing challenges in managing inflation and bond market dynamics. The next policy review will likely provide more clarity on the BOJ's plans for addressing these issues.