Japan's Central Bank Reduces Public Debt Purchase Program

The Bank of Japan (BoJ) decided, by eight votes to one, to reduce debt purchases "to ensure that yields on long-term bonds are formed more freely in financial markets."

The central bank did not release details about the cut in purchasing volume, which currently stands at around 6 billion yen (around 35.4 billion euros), according to a statement published at the end of the institution's two-day monthly meeting. .

The BoJ, which holds more than half of public debt securities in circulation, called a meeting of the internal group responsible for bond markets, with a date yet to be defined, during which "future conduct" will be discussed.

The institution promised to listen to debt market participants and other experts and prepare, before the next monthly meeting, scheduled for July 30 and 31, "a detailed plan to reduce the amount of purchases for the next one or two years".

The decision to reduce bond purchases was welcomed by financial markets as another step towards progressive monetary normalization, after more than a decade of negative interest rates.

The Tokyo stock exchange's main index, the Nikkei, which remained in negative territory during the first part of the morning session, rose 0.7% in just 15 minutes, following the BoJ's announcement.

Still, the chief economist at consultancy Mizuho Securities, Shunsuke Kobayashi, told the France-Presse news agency that the measure "is a disappointment for those who expected more clarity" on the extent of the reduction.

The decision comes at a time when yields on long-term Japanese sovereign debt were at their highest levels in more than a decade, raising concerns about borrowing costs in Japan.

On the other hand, the central bank chose to maintain the short-term reference interest rate at 0.1%, well below that of other major world economies.

The BoJ argued that the Japanese economy has shown signs of weakness, despite a moderate recovery, in a context in which both consumption, exports and production remain stagnant.

The central bank also alluded to the current inflation trend in the archipelago, which has remained in a range between 2% and 2.5% in recent months, while employment and wages have only risen moderately.

"The BoJ does not have good options" at its disposal at the moment, said, in a note, Stefan Angrick, economist at Moody's Analytics, because "the Japanese economy is not doing well", with domestic demand remaining weak because wages are not keeping up inflation.