MNI: BOJ Opinions: Steady JGB Cut; Decisive Policy Change

A few Bank of Japan board members supported steadily reducing the Bank’s JGB holdings, though concerns over moving too quickly were also raised, according to the summary of opinions from the June 16-17 policy meeting released Wednesday.

One member said the BOJ should normalise the amount of outstanding JGB holdings as soon as possible to “increase, at the earliest possible time, the capacity in financial markets to absorb shocks.”

Another member noted that excess reserves remained abundant, making it appropriate for the Bank to “proceed steadily with the reduction of its purchase amount of JGBs, and thereby normalise its balance sheet.”

However, a different member expressed caution, warning that a hasty reduction could backfire. “While it is desirable for the Bank to reduce its share of JGB holdings as swiftly as possible, if it proceeds too hastily, the adjustments may end up taking more time – as was the case when the Federal Reserve had to discontinue [quantitative tightening] in 2019,” the member said.

Another board member added that the BOJ needs to assess both the long-term purchase amount and the future path of balance sheet reduction. 

The BOJ decided by majority vote to slow the pace of JGB tapering from JPY400 billion to JPY200 billion per quarter at the meeting, starting in April 2026. (See MNI BOJ WATCH: Ueda Flags Gradual Hikes, Warns Of JGB Risks) Board member Naoki Tamura dissented, proposing to keep the tapering pace unchanged at JPY400 billion, though his proposal was voted down.

POLICY OUTLOOK

Some board members showed diverging views on inflation and the need for future policy adjustments.

One member took a more hawkish stance, noting the Bank may be forced to adjust the degree of monetary accommodation decisively, even when there is high uncertainty, due to higher-than-expected inflation. 

Others were more cautious.

“Even though prices have been somewhat higher than expected, it is appropriate for the Bank to maintain its current stance, given the downside risks to economic activity stemming from U.S. tariff policy and the situation in the Middle East,” one member said.

Another member echoed the need for patience, stating: “With extremely high uncertainty in the outlook, it is necessary to examine economic developments and other factors. It is therefore appropriate for the Bank to maintain the current policy interest rate for the time being.”

MIXED INFLATION

Board members also held differing views on inflation dynamics.

One member warned that Japan could experience unexpected inflationary pressure, noting that “Europe, the U.S., China, and other emerging economies have all leaned toward accommodative fiscal and monetary policies.”

Another member, however, said that while CPI has exceeded expectations, “the pass-through of higher wages to services prices seems to have plateaued.”