Insights 
VT 
The Bank of Japan (BOJ) has laid out a plan to gradually taper its outright purchases. The current reduction stands at approximately ¥400 billion per calendar quarter and is set to continue until the first quarter of 2026.
In the second quarter of 2026, the reduction amount will decrease to around ¥200 billion. By the first quarter of 2027, the total amount of outright purchases will be reduced to nearly ¥2 trillion.
Breakdown Of Reductions
The BOJ has also provided a breakdown of how these reductions will be sorted in terms of tenors for the upcoming quarter. This plan aims to provide a clear schedule for adjusting purchase levels while maintaining market stability.
What this initially outlines is a measured decrease in the Bank of Japan’s asset purchases over the next several years. The total volume is being scaled down with steady reductions every quarter, signalling a path away from their ultra-loose monetary stance. The current pace—around ¥400 billion per quarter—is set to remain in place for the immediate future, before easing further to ¥200 billion in the middle of 2026. By early 2027, overall holdings are projected to come down to ¥2 trillion.
More importantly, specifics on tenors indicate how the central bank wants to keep predictability in fixed income markets. By allocating reductions across maturities, they’re trying to avoid distorting yield curves abruptly or injecting sudden volatility.
Market Implications And Strategies
Nakaso and his team are not rushing this change. The slow pace reflects a strategy designed to let rates breathe on their own, while still keeping a gentle hand in the market. We should not discount how deliberate this is—it offers signals on long-term risk expectations from a key policy player.
For those of us monitoring cross-asset derivatives, this rhythm of tightening can bring clear directional insight. Reduction patterns in longer tenors may suggest appetite for curve steepeners if long-end pressures start building without sufficient demand to offset. Short tenors, on the other hand, remain the hinge around which forward volatility premia may pivot. If we’re holding exposure that picks up moves in short-term funding or term premia, alignment with this BOJ trajectory matters.
Volatility traders may find comfort in the predictability offered here, but it’s not a carte blanche for passivity. What matters is whether short rate expectations begin to unmoor from guidance. If so, realised volatility could surface faster than implieds suggest. That spread is worth watching.
Hirano’s group has not committed to a rigid calendar beyond 2027. If inflation stabilises, or government issuance shifts in size or tenor, we may see changes to their pathway. But for now, this shapes the range for directional biases on JGBs and hedging themes.
We don’t need dramatic repricing. The slow contraction in acceptance of duration risk by the Bank itself may be enough to push incremental shifts in dealer inventory, repo liquidity patterns, and total return positioning. Even a ¥200 billion shift, provided it concentrates in a less liquid point of the curve, can affect deliverable supply on futures.
The most useful action in the coming weeks is to examine convexity footprints across tenor splits and refinance dates. Slower reductions further out often tilt swaptions in one direction, and clarity here means these can be priced more cleanly.
Remember that forward guidance, when combined with such a measurable taper, means market pressure will take time to build. But when it does, it will likely move in clear steps. Pricing this path—not just the end state—is where edge lies for the next quarter.
