The Bank of Japan is planning to cut its purchases of Japanese government bonds by half. Starting in April 2026, quarterly purchases may drop to 200 billion yen, or about $1.4 billion. This plan will be reviewed at the central bank’s policy meeting, and most board members are expected to support it. The Bank of Japan plans to keep its benchmark interest rate at 0.5%. A survey indicates that interest rates will likely stay the same until the end of the year. The Bank aims to maintain interest rates while reducing the pace of bond buying because of market pressures. The Bank of Japan is taking a careful approach. They want to reduce their involvement in the government bond market while keeping short-term interest rates stable. This means they will start to scale back their support, but they are not completely withdrawing from the market just yet. They want to avoid upsetting traders and investors who are closely watching for any mistakes that could lead to significant price changes. This strategy seems designed to exit extraordinary policy tools without causing trouble in the local debt market. Kuroda’s successors are slowly moving towards a slightly tighter approach. The plan to keep the benchmark rate at 0.5% suggests that inflation and domestic demand do not require further tightening, especially as global markets remain cautious. A complete withdrawal of support might not be possible in the short term. Bond buying will continue, but in smaller amounts than in the past decade. From our view, the planned reduction to about ¥200 billion per quarter marks an important shift. While it’s not a complete policy change, it shows a gradual move in that direction. Halving the purchase volume indicates growing confidence among board members in the market’s resilience—or at least a desire to test it. The crucial detail is the timeline. The change starting in April 2026 gives traders enough notice, reducing immediate volatility risks but making it essential to price long-term contracts and spreads accurately. Ueda’s team is trying to balance several goals: reduce liquidity, keep borrowing costs steady, and prevent confusion in the domestic markets. Moving too quickly could cause shock, while moving too slowly might undermine credibility. We expect this gradual change will lead to adjustments in bond yield expectations without causing immediate swings. As market liquidity tightens over time, the cost of hedging against interest rate exposure may rise. This is a situation we need to prepare for. We believe communication will become clearer in the coming months. This will make forward-guided strategies more effective again. The yield curve should stay relatively stable for now. Short-term rates are already priced for stability, while long-term rates still reflect uncertainty about the bank’s next steps. Using this trend, value strategies can continue to discover opportunities that are neutral in duration. In summary, traders should see the slow reduction in bond purchases as a sign of slight tightening pressure that won’t happen all at once. It’s all about understanding the timeline against the volume and aligning it with volatility factors. Focusing on instruments that benefit from less intervention—while managing expectations around policy stability—could lead to better results. Watch how demand changes in the swap market, as that’s often where pricing certainty develops first.

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