Mizuho Calls for Quicker BOJ Bond Tapering as Rate Hike Plans Face Challenges

Image Credit: Reuters

Mizuho Financial Group's chief market strategist, Kenya Koshimizu, has urged the Bank of Japan (BOJ) to accelerate its tapering of government bond purchases, citing that the potential pause in interest rate hikes would offer the central bank more flexibility in adjusting its bond-buying strategy. This call comes ahead of the BOJ's scheduled review of its bond tapering plan in June.

Koshimizu emphasized that voices from major market players, like Mizuho, will be pivotal in shaping the review, especially as the BOJ’s reduced presence in the debt market increases the role of private-sector banks. These banks are expected to step up as key buyers of Japanese government bonds (JGBs).

He acknowledged that the pace of tapering was slow last year due to concerns about rising bond yields amid rate hikes, but with growing uncertainties surrounding U.S. policies and the global economy, the BOJ may now have more room to adjust its plan.

The BOJ's quantitative tightening (QT) program, which began last year, aims to reduce bond purchases by 400 billion yen per quarter, halving its monthly purchases to 3 trillion yen by March 2026. While Koshimizu didn't specify the ideal pace for tapering, he suggested that it doesn't need to be as slow as last year. He stressed the importance of restoring Japan's bond market functionality, especially amid global market volatility driven by major shifts in U.S. policy.

The BOJ currently holds about half of all outstanding JGBs, which has led to concerns about market liquidity and price discovery. In the longer term, Koshimizu remains optimistic about Japan’s economic outlook, noting that the country’s shift from deflation has prompted Japanese companies to focus more on growth than cost-cutting.

Koshimizu also discussed the possibility of Mizuho buying U.S. Treasuries in the future, depending on circumstances, following a reduction in risk exposure in recent years. He pointed out that global economic uncertainties have increased the appeal of highly liquid assets like U.S. Treasuries.

Paraphrasing text from "Reuters" all rights reserved by the original author