The Bank of Japan's interest rate hike meets resistance, Mizuho calls for seizing the opportunity to accelerate the reduction of bond purchases.

Kenya Koshimizu, co-head of Global Markets at Mizuho, expressed the view that the Bank of Japan should accelerate the pace of reducing government bond purchases, as the possibility of postponing interest rate hikes would provide the Bank of Japan with greater flexibility to adjust its reduction plan. Koshimizu made this call before the Bank of Japan's review of its existing bond reduction plan in June. The voices of major market participants like Mizuho will form the basis for the upcoming review, as the Bank of Japan's influence in the bond market has diminished, increasing the importance of private banks as buyers of Japanese government bonds. Koshimizu stated last Friday, "The pace of reducing bond purchases last year was very mild," as there were concerns that reducing bond purchases while hiking interest rates could lead to a sudden spike in bond yields. However, he mentioned that due to increased uncertainty in U.S. policies and the global economy, the Bank of Japan may face challenges in continuing with rate hikes, providing the bank with more flexibility in adjusting its reduction plan. President Trump's tariff plan has shaken financial markets, raising concerns about a global economic recession and complicating the path for the Bank of Japan to raise interest rates. According to the quantitative tightening (QT) plan implemented last year, the Bank of Japan reduces bond purchases by about 400 billion yen per quarter, with the monthly purchase amount set to halve to 3 trillion yen by March 2026. Koshimizu declined to comment on what would be an appropriate pace of reduction, but added, "It doesn't need to be as mild as last year." He stated, "We should now focus on restoring the functionality of the Japanese government bond market," especially at a time when the most significant shifts in U.S. policy in decades are causing turbulence in global markets. The Bank of Japan holds around half of all outstanding Japanese government bonds, putting pressure on market liquidity and price discovery. When asked under what conditions Mizuho would start buying Japanese government bonds with full force, Koshimizu said it would "depend on the specific circumstances." He hinted that after reducing risks in recent years, the possibility of buying U.S. government bonds could be considered. "The increased uncertainty in the global economy has enhanced the attractiveness of high liquidity products," he stated. Koshimizu expressed confidence in Japan's outlook in the long term, as escaping deflation has led Japanese companies to shift their focus from cost-cutting to promoting growth.