Photo/Illutration The Bank of Japan head office in Tokyo’s Chuo Ward (Asahi Shimbun file photo)

The Bank of Japan will slow the scaling back of its government bond purchases from the next fiscal year to deter upward pressure on long-term interest rates.

At a two-day Policy Board meeting that ended on June 17, the BOJ decided to continue to roll back its monthly bond buying beyond April but halve the margin of curtailment to 200 billion yen ($1.4 billion) each quarter.

BOJ policymakers opted for a slower pace out of concerns that substantial cutbacks in bond purchases may drag down bond prices and push up long-term interest rates.

At a news conference on June 17, BOJ Governor Kazuo Ueda said it is desirable for the central bank to further reduce government bond buying, noting that the market basically determines long-term interest rates.

However, he said the market’s stability may be unexpectedly affected if the BOJ cuts down on bond purchases too fast.

“We gave consideration to prevent an extraordinary volatility in interest rates from adversely impacting the economy,” Ueda said.

The BOJ also decided to keep the policy interest rate unchanged, which marked the holding off on rate hikes for the third consecutive meeting, due to expected global economic slowdowns.

Ueda told the news conference that the future of U.S. tariffs, as well as their impact on overseas economies and price trends, is extremely uncertain.

He said the central bank will monitor how investments by domestic companies and household consumption will be influenced.

The BOJ, which purchased a huge amount of government bonds to contain interest rates, has been tapering the bond-buying program to normalize its monetary policy.

Under a plan adopted in July last year, the BOJ is reducing the amount of bonds it buys per month by 400 billion yen each quarter until March.

The amount will shrink from about 5.7 trillion yen in July last year to about 2.9 trillion yen.

The BOJ decided to maintain the current plan and also adopted a new one-year plan through March 2027 with a slower pace of reduction.

The amount of monthly bond buying will slide to about 2.1 trillion yen in March 2027.

As of December, the BOJ held 52.1 percent of the total amount of the government bonds outstanding worth more than 1,074 trillion yen.

The target for the uncollateralized overnight call rate, which commercial banks charge on loans to each other, will be maintained at about 0.5 percent.

In March last year, the BOJ ended its 11-year ultra-easy monetary policy and lifted the negative interest rate policy, which marked its first interest rate hike in 17 years.

Interest rates were raised in July last year and again in January, both by about 0.25 percentage point.

But the central bank has since kept them steady, citing growing uncertainties from U.S. tariffs imposed by President Donald Trump, who returned to the White House in January.

Ueda has emphasized that the BOJ will continue interest rate hikes if economic activity and prices move in line with its projections.

BOJ policymakers are focusing on whether a virtuous cycle of rising prices and wages will materialize.

The consumer price index, excluding volatile perishables, increased 3.5 percent in April from a year earlier, according to internal affairs ministry figures released on May 23.

The CPI growth rate has been exceeding the BOJ’s inflation target of 2 percent for more than three years.

The average wage increase topped 5 percent for the second year in a row during the “shunto” annual spring labor offensive this year, according to Rengo (Japanese Trade Union Confederation).

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