Liquid Insight: BoJ to maintain JGB purchase reduction plan; BS to keep shrinking

Research evidence excerpt

Liquid Insight: BoJ to maintain JGB purchase reduction plan; BS to keep shrinking

the consumption tax and the curve bear-steepened rapidly, the BoJ opted to stand aside

and monitor market developments.

In addition, offer-to-cover ratios at BoJ Rinban operations have not indicated a

meaningful shift in supply-demand conditions (Exhibit 1). Ratios across maturities have

generally remained within a range of roughly 2–4x. Moreover, in its Market Operations in

Fiscal 2024 report, the BoJ noted that “bond market functioning has been following an

improving trend, with the reduction in the Bank's JGB purchases proceeding; however,

the improvement in market functioning is only partial, since the DI for the degree of

bond market functioning remains in negative territory”. The BoJ also stated that it will

continue to closely monitor changes in market functioning as the reduction in its JGB

purchases progresses.

In the most recent May 2026 survey, the bond market functioning DI improved to -16

from -44 in May 2025 (Exhibit 2), but remains in negative territory. Taken together,

these developments suggest the BoJ is likely to refrain from halting reductions or

increasing purchases from June 2026, and instead maintain its current reduction stance.

Indeed, according to materials from the BoJ’s meeting with bond market participants

released on May 21, the majority of participants indicated that no revisions to the

purchase reduction plan through March 2027 were necessary.

Exhibit 1: No strong selling pressure evident at Rinban operations Exhibit 2: Bond market functioning DI remains in negative territory

Offer-to-cover ratio at Rinban by tenor The degree of bond market functioning

6 40

1y~3y 3y~5y 5y~10y Current Situation Change from 3 months ago

10y~25y 25y~ 20

4 0 %points)