The Bank of Japan should speed up the pace of tapering its government bond purchases as the possibility of a pause in rate hikes would give the central bank more wiggle room to adjust its tapering plans, Mizuho Financial Group’s head of markets told Reuters.
Kenya Koshimizu, co-head of the global markets department at the Bank of Japan, Japan’s third-largest bank, made the call ahead of the central bank’s review of its existing bond tapering plans in June.
The voices of major market players such as Mizuho will form the basis of the upcoming review, with the Bank of Japan’s shrinking influence in debt markets boosting the importance of private banks, which are expected to re-emerge as major buyers of Japanese government bonds (JGBs).
Koshimizu said in an interview on Friday that “the pace of tapering last year was very modest” because of concerns that it could cause a sudden surge in bond yields if combined with rate hikes.
But with heightened uncertainty over U.S. policy and the global economy making it difficult for the central bank to continue raising rates for the time being, “the Bank of Japan may have more flexibility in adjusting its tapering plans,” he said.
U.S. President Donald Trump’s tariff plans have shaken financial markets and raised concerns about a global recession, making it less clear whether the Bank of Japan will be able to continue raising interest rates.
Under a quantitative tightening (QT) plan drawn up last year, the Bank of Japan is reducing bond purchases by about 400 billion yen per quarter, halving monthly purchases to 3 trillion yen by March 2026.
Koshimizu declined to comment on the appropriate pace of reductions, but added: “It doesn’t have to be as gentle as last year.”
“We should now focus on restoring the function of the national bond market,” he said, especially as the biggest shift in U.S. policy in decades has caused turmoil in global markets.
The Bank of Japan holds about half of the outstanding Japanese government bonds, which puts pressure on the market’s liquidity and price discovery functions.
Asked under what conditions Mizuho would start full-scale purchases of Japanese government bonds, Koshimizu said it would “depend on the specific situation.”
He suggested considering buying U.S. Treasuries after reducing risk exposure in recent years. “Global economic uncertainty enhances the appeal of highly liquid products,” he said.
Koshimizu said he was confident about Japan’s prospects in the long run because escaping deflation has allowed Japanese companies to shift their focus from cutting costs to promoting growth.
