TOKYO - The Bank of Japan is expected to unveil details of a quantitative tightening plan at its monetary policy meeting next week, aimed at reducing its holdings of government bonds.
Takeshi Yamaguchi, chief Japan economist at Morgan Stanley MUFG Securities, says if the central bank reduces its monthly bond buying to 3 trillion yen, the benchmark 10-year yield would only rise between 10 to 20 basis points.The BOJ's balance sheet has ballooned over the past decade as it aggressively bought JGBs to defend its now defunct yield curve control policy, which kept 10-year yields capped around 0%.
The BOJ's most recent survey on bond market function stood at -24 in May, up from -29 in February and improving to levels unseen since February 2022 after the central bank ended YCC in March, but still deeply negative.Shrinking the BOJ's balance sheet won't be quick or easy.