Bank of Japan Plans to Trim Massive Bond Purchases

The Bank of Japan (BOJ)  said it would start trimming its huge bond purchases and announce a detailed plan next month on reducing its nearly $5 trillion balance sheet, taking another step toward unwinding its massive monetary stimulus.

While it will continue to buy government bonds at the current pace of roughly 6 trillion yen ($38 billion) per month for now, the central bank decided to lay out details of its tapering plan for the next one to two years at its July meeting.

The plan to slow bond purchases was widely anticipated. However, the lack of immediate details was seen by some investors as an indication the central bank will be cautious in adjusting monetary policy going forward. That dovish market interpretation sent the yen and Japanese bond yields lower.

"At that time, we consider that it will be appropriate to reduce the quantity of Japanese government bond (JGB) purchases in a predictable manner so as to allow for flexibility in taking the stability of the bond market into account," Kazou Ueda Governor of The Banks of Japan said.

"As we reduce bond buying, the Bank of Japan's bond holdings will decrease. But in our view the so-called 'stock effect' of our holdings will continue to exert an effect on the economy," he added.

The BOJ said it will collect views from market players, before deciding on the long-term tapering plan at its next meeting.

As widely expected, the BOJ kept its short-term policy rate target in a range of 0-0.1% by a unanimous vote.

The central bank also maintained its view the economy continues to recover moderately with consumption holding firm.

After the announcement, the yield on the benchmark 10-year JGB fell to 0.915% while the yen hit a more than one-month low of 158.255 to the dollar.