Thoughts on Endpoint for BoJ's JGB Holdings

The report analyzes the endpoint for the Bank of Japan's JGB holdings, focusing on the impact of reducing current account balances on short-term interest rates.

Key Takeaways

• 1.The BoJ's ability to reduce current account balances is the primary determinant for the endpoint of its JGB holdings.
• 2.Current account balances could potentially be reduced to the JPY250-300 trillion range without causing a significant spike in short-term interest rates.
• 3.The Bank may continue trimming JGB holdings in FY28 and beyond while utilizing fund-provisioning facilities to maintain market stability.

Table of Contents

• Key points
• BoJ decides at June MPM to stop tapering its bond purchases from April 2027 onward
• Ability to reduce current account balances a key factor when considering endpoint for bond holdings
• We think current account balances could be trimmed to JPY250-300 trillion without significant impact on short-term rates
• US reserve balances relative to GDP after QT ended also offers some indications
• We anticipate little impact from reduction in BoJ bond holdings, at least until FY27
• BoJ may continue reducing JGB holdings in FY28 and beyond while monitoring money market

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