Mizuho on BoJ - FJElite
We accordingly remain of the view that the BOJ's next rate hike is most likely to come at the June meeting.
That meeting is also set to see the BOJ deliver its "interim assessment" of its "Plan for the Reduction of the Purchase Amount of Japanese Government Bonds". Ueda alluded to this review in his aforementioned speech, declaring that "functioning of the JGB markets has been steadily improving as the Bank makes headway in reducing its [purchases]" but also acknowledging the need to "keep an eye on stability in the JGB markets".
We had already expected—based on our own calculations as well as what had been reported in the media—that the BOJ would stick with its current plan through 1Q 2027 but then either stop tapering back its purchases from 2Q 2027 or at least reduce its quarterly decrement for monthly purchases from the current JPY0.2 trillion to (say) JPY0.1 trillion. Ueda's remarks yesterday have only served to increase our confidence in such a scenario.
The BOJ's balance sheet is seemingly set to keep shrinking regardless, with only the pace of contraction in question. But such an adjustment could make it easier for the central bank to send a message that it is taking rising interest rates into account, which might in turn help to improve dialogue with the Takaichi administration and thereby facilitate gaining its backing for further rate hikes.