Famous doves at the Bank of Japan: There is no need to change the reduction of bond purchases program and hold a cautious attitude towards future policy paths.

Asahi Noguchi, a member of the Bank of Japan's policy board known for his dovish stance, said on Thursday that there is no need to make significant adjustments to the plan to reduce the scale of bond purchases by the Bank of Japan. He stated, "There is currently no need to make any major changes to the current plan. The Bank needs to take a longer-term view of the plan after April 2026." On Wednesday, the Bank of Japan concluded a series of meetings with market participants. These meetings will help the Bank of Japan decide how quickly to reduce the scale of bond purchases. Japanese authorities will announce the post-April 2026 bond purchase guidance in a month. Currently, the Bank of Japan is reducing bond purchases by 400 billion USD (about 28 trillion yen) per quarter, with monthly bond purchases expected to decrease to around 2.9 trillion yen by the spring of 2026. Since November 2023, the Bank of Japan's holdings of bonds have already decreased by 21 trillion yen. However, the market has begun to worry that the Bank of Japan's reduction in bond purchases will severely impact demand, leading to a significant drop in Japanese government bond prices. In Tuesday's Japanese government bond auction, the average bid-to-cover ratio decreased from 2.96 the previous month to 2.5; the bid-to-cover ratio for 20-year Japanese government bonds dropped to the lowest level since August 2012. Another sign of weak demand is the "tail" (the difference between the average bid price and the lowest bid price) reaching 1.14, the longest since 1987. Noguchi stated that the current plan to reduce bond purchases was announced in July 2024, which means that the Bank of Japan's policy of buying Japanese government bonds will not change, as long-term interest rates are determined by the market. He also mentioned that it "allows for flexible adjustments in the scale of buying Japanese government bonds in case of sudden market fluctuations." He pointed out, "Although the restoration of market functions is important, it would be pointless if it ultimately encourages or ignores market turmoil." Noguchi also remained calm about the rapid rise in the yield of benchmark 10-year Japanese government bonds two months ago, when it reached nearly 1.6%. He stated, "This rise, although rapid, cannot be seen as destructive, as it seems to mainly reflect market participants' expectations of higher eventual policy rates." Furthermore, Noguchi expressed cautiousness about the normalization of the Bank of Japan's monetary policy, partly due to the increasing economic downside risks brought about by the global trade war. He stated that concerns about US tariff measures leading to stagflation are "sharply rising," and in a highly uncertain situation, the Bank of Japan's eventual policy rate should not be predetermined based on factors such as neutral rate estimates. Instead, the impact of every rate hike should be carefully examined. Noguchi said, "I think it is necessary to take a cautiously optimistic approach to future monetary policy, closely monitoring the growing overseas risks while calmly assessing how the situation evolves." Noguchi made these comments at a time when the risk of Japan slipping into a technical recession has intensified after an unexpected contraction in the economy in the first quarter. The April trade data released on Wednesday showed that US President Trump's tariff policies, especially the 25% tariff on imported cars, have started to hit Japan's exports, which are a key driver of Japan's economic growth. The market is now focused on the latest inflation data to be released on Friday. Japan's national core CPI for April is expected to accelerate to 3.4% year-on-year, the fastest increase in two years, bringing Japan's inflation rate to or above the Bank of Japan's target level for the third consecutive year. However, Noguchi stated that while the data shows that the Bank of Japan has made progress in achieving its target, the target has not yet been met.