The Bank of Japan is likely to reduce government bond purchases over the next three months as upward pressure on yields fades amid a financial sector crisis. Japan’s 10-year yield has remained well below the policy ceiling of 0.5 percent since the collapse of Silicon Valley Bank on March 10 rocked markets and fueled bets the Fed would slow its tightening.
Strategists at investment banks including SMBC Nikko Securities said the backdrop provided an opportunity for the BOJ to reduce purchases of government bonds for the first time since the third quarter of 2021. “If the 10-year government bond yield falls toward “0”, the center of its range, the BOJ may continue to reduce purchases,” said Eiji Dohke, chief bond strategist at SBI. “That’s exactly what yield curve control is all about.”
Ataru Okumura of SMBC Nikko Securities expects the buying range for 5- to 10-year bonds to be cut by about 100 billion yen ($755 million) and the rest by 50 billion yen. Shoki Omori, chief strategist at Mizuho Securities, said the BOJ may trim the lower end of the range slightly to increase flexibility.
