By Makiko Yamazaki and Miho Uranaka
TOKYO (Reuters) -The Bank of Japan should pick up the pace of tapering government bond purchases as the possibility of a pause in interest rate hikes will give the central bank more wiggle room to adjust the tapering plan, Mizuho Financial Group’s markets chief told Reuters.
Kenya Koshimizu, co-head of the global markets division at Japan’s third-largest lender, made the call ahead of the BOJ conducting a review of its existing bond tapering plan in June.
Voices of major market participants like Mizuho will form a basis for the upcoming review, with the BOJ’s shrinking debt market presence heightening the importance of private-sector banks on hopes they will return as major buyers of Japanese government bonds (JGBs).
“The pace of tapering was very moderate last year,” as there were fears that it could cause abrupt spikes in bond yields when combined with interest rate hikes, Koshimizu said in an interview on Friday.
But as heightened uncertainties over U.S. policies and the global economy make it difficult for the central bank to keep raising rates for the time being, “the BOJ is likely to have more flexibility in adjusting the taper plan,” he said.
U.S. President Donald Trump’s tariff plans have jolted financial markets and stoked fears of a global recession, making it less clear whether the BOJ can keep raising rates.
Under a quantitative tightening (QT) programme laid out last year, the BOJ has been slowing bond purchases by around 400 billion yen per quarter to halve monthly purchases to 3 trillion yen by March 2026.
Koshimizu declined to comment on what would be the appropriate pace of reduction, but added: “It doesn’t have to be as moderate as last year.”
“We should now focus on restoring the function of the country’s bond markets,” particularly at a time of global market turbulence caused by the biggest shift in U.S. policies in decades, he said.
The BOJ owns about roughly half of outstanding JGBs, straining the market’s liquidity and price-discovery function.
When asked the conditions under which Mizuho would start buying JGBs in full force, Koshimizu said it would “depend on circumstances.”
He suggested the possibility of buying U.S. Treasuries after having reduced the risk exposure in recent years. “The global economic uncertainties boost the appeal of highly liquid products,” he said.
In the long term, Koshimizu said he is confident about Japan’s prospects, as the exit from deflation has led Japanese firms to shift their focus from cost-cutting to boosting growth.
(Reporting by Makiko Yamazaki and Miho Uranaka; Additional reporting by Anton BridgeEditing by Shri Navaratnam)
Comments