BOJ’s Bond‑Purchase Taper Faces Pushback from Prime Minister Takaichi’s Economic Team

BOJ’s bond‑purchase taper under review

The Bank of Japan (BOJ) announced in August 2024 that it would begin tapering its massive ¥​80 trillion annual purchase programme for Japanese Government Bonds (JGBs). The first reduction – a 10 % cut to the monthly buying quota – took effect in September and was followed by a further 5 % trim in December. The central bank now faces a policy decision for fiscal 2025‑26: whether to deepen the taper, pause it, or even reverse course if market stress intensifies.

Voices of caution from the Takaiko cabinet

Prime Minister Sanae Takaichi’s economic advisers, led by former Finance Ministry Vice‑Minister Hiroshi Nakayama, have publicly urged the BOJ to tread carefully. In a briefing on May 14, they highlighted three risk vectors:

1. Yen volatility – The yen has weakened to ¥ 152 per dollar, its weakest level since 1990, after the BOJ’s initial taper coincided with a surge in U.S. Treasury yields. A further pull‑back could push the currency below ¥ 155, raising import‑price pressure.
2. Rising JGB yields – Long‑term JGB yields breached 2.6 % on May 10, the highest since 2018, widening the spread with corporate bonds and threatening the funding cost of local governments.
3. Household balance‑sheet strain – Real‑interest‑rate differentials are now negative for the first time in three years, eroding the modest recovery in household consumption that the BOJ’s stimulus aimed to support.

The advisers argue that the BOJ’s mandate to achieve a 2 % inflation target “in a sustainable manner” must be balanced against the broader macro‑economic stability of the country.

Market context: bond yields, yen and inflation

Indicator	Current level (May 2026)	Recent trend
10‑year JGB yield	2.62 %	Up from 1.8 % in Jan 2024
Yen‑USD spot	¥ 152	Down 7 % YoY
Core CPI (YoY)	2.3 %	Above BOJ’s 2 % target for 8 months
Core CPI (MoM)	0.4 %	Slightly above the 0.3 % “inflation‑stable” threshold

The BOJ’s taper has coincided with a sharp rise in global commodity prices, driven by the Iran‑U.S. conflict and higher oil imports. Imported fuel costs have added roughly ¥ 1,200 to the average household’s monthly budget, feeding through to the core CPI.

Strategic implications for policy

1. Monetary‑policy flexibility – A slower taper would preserve the BOJ’s balance‑sheet buffer, allowing a more decisive rate‑hike if inflation accelerates further. Conversely, an aggressive cut could force the central bank to rely on a higher policy rate to curb yield spikes, risking a premature tightening.
2. Fiscal‑monetary coordination – The government’s new round‑the‑clock JGB trading platform, slated for launch in Q4 2026, aims to deepen market liquidity. Advisors warn that a sudden drop in BOJ demand could overwhelm the nascent platform, creating price dislocations.
3. Currency‑intervention calculus – The Ministry of Finance reportedly intervened in the yen market roughly ¥ 30 bn during Golden Week, a figure that could rise sharply if the BOJ’s taper fuels further depreciation.

What it means for investors and the broader economy

• Bond investors should monitor the BOJ’s meeting minutes for any language indicating a “pause” versus a “continue” approach. A pause could stabilise yields, while a continuation may push the 10‑year JGB above 2.8 %.
• Export‑oriented firms may benefit from a weaker yen in the short term, but sustained depreciation could raise input costs and erode profit margins if inflation spirals.
• Households face a trade‑off: lower yields mean cheaper government‑bond‑linked savings, yet higher inflation erodes purchasing power. The advisers’ call for a measured taper reflects a desire to avoid a “policy‑shock” that could tip the balance.

The BOJ’s next policy meeting on June 12 will likely set the tone for the remainder of the fiscal year. Whether the central bank opts for a cautious pause or proceeds with a deeper taper will shape Japan’s monetary stance for the rest of 2026 and beyond.