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The BOJ (Bank Of Japan) Is Unlikely To Conduct Emergency Bond Purchases Even If Bond Yields Continue To Rise. Former BOJ Board Member Sayuri Shirai, Now A Professor At Keio University, Stated That The Central Bank’s Primary Goal Remains Its Tapering Plan To Reduce Its Massive Bond Holdings.

"The Current Pace Of Tapering Is Moderate In The First Place," Shirai Said. "The Government Is Likely Comfortable As Long As The 10-year Bond Yields Remain Below 2%."

Tapering Plan And Bond Market Functioning

The BOJ Aims For Its Tapering Plan To Gradually Ease Market Distortions Caused By Past Heavy Interventions In The Bond Market. However, Progress Has Been Slow. A Recent BOJ Survey Of Insurers And Asset Management Firms Indicated That The Volume And Liquidity Of The Bond Market Had Not Improved Significantly.

The Survey's Index On Bond Market Functioning, Which Measures Whether Market Participants Can Execute Large Transactions Smoothly, Stood At -20. This Suggests That More Respondents View The Market’s Liquidity As Weak Rather Than Strong.

Long-Term Yields And Monetary Policy Review

The Key Test Will Come In June, When The BOJ Reviews Its Current Tapering Plan, Set To Last Until March 2026. The Decision Will Be Crucial In Determining How Quickly The Central Bank Can Shrink Its Balance Sheet.

If Long-term Yields Continue To Rise, The BOJ May Need To Reassess The Pace Of Its Tapering Beyond April 2026. Analysts Also Suggest That Rising Bond Yields Could Influence The Board’s Discussions On The Timing And Pace Of Increasing Interest Rates, A Key Element Of Japan’s Monetary Policy.

Economic Slowdown Risks And External Factors

While The BOJ Closely Monitors Domestic Financial Conditions, External Factors Such As U.S. Trade Policies Could Impact Japan’s Economy. Former BOJ Board Member Takahide Kiuchi Noted That U.S. President Donald Trump’s Threat To Impose Auto Tariffs Could Raise Concerns About An Economic Slowdown In Japan.

"If Fears Over Japan’s Economic Outlook Intensify And Push Down Stock Prices, Investors May Turn To JGBs (Japanese Government Bonds) As A Safe Asset," Kiuchi Said. This Could Lead To Increased Demand For JGBs, Driving Bond Yields Lower And Potentially Affecting The BOJ’s Monetary Policy Decisions.

The BOJ Maintains Its Tapering Plan Despite Rising Bond Yields, Focusing On Reducing Bond Holdings And Monitoring Market Liquidity.

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