BOJ Slows Bond Taper, Holds Rates Amid Trade Uncertainty

The Bank of Japan (BOJ) slows bond taper and holds rates steady. This cautious move reflects growing concerns over global trade tensions and their impact on Japan’s economy. For years, the BOJ bought large amounts of Japanese Government Bonds (JGBs) to keep yields low. This ultra-loose monetary policy aimed to end stagnation and deflation. However, as inflation began to rise last year, the BOJ shifted course.

It raised interest rates and started cutting back on bond purchases. Today, Japan’s interest rate stands at 0.5%—its highest level since 2007. The central bank has also reduced its JGB buying pace. Still, fears over trade conflicts have led the BOJ to act carefully. On Tuesday, the BOJ announced it would slow the pace of its bond taper.

Specifically, it plans to cut JGB purchases by about 200 billion yen per quarter starting in April 2026. This is down from the current pace of 400 billion yen. “Slowing the bond taper will help keep interest rates lower,” said Carol Kong, an analyst at the Commonwealth Bank of Australia. “It supports the economy while trade uncertainty remains high.” Consequently, investors had already expected the move.

Moreover, yields on long-term JGBs have surged in recent months. After the BOJ’s decision, the yen weakened. The dollar traded at 144.80 yen, up from 144.30 on Monday. Japan’s interest rate remains far below the U.S. Federal Reserve’s 4.25–4.5%. Additionally, Lee Hardman of MUFG said the weaker yen may reflect BOJ caution and concerns over the Middle East crisis.

Furthermore, the BOJ said in its outlook that Japan’s growth will likely slow. Declines in global demand and company profits could weigh on the economy. But easy credit conditions should help offset the drag. Moreover, the U.S. trade war adds more pressure. Japan faces a 10% base tariff from the U.S., along with extra duties on cars, steel, and aluminum.

In April, President Trump announced a 24% tariff on Japanese goods. However, the U.S. later paused enforcement for key partners, including Japan. Prime Minister Shigeru Ishiba confirmed there was no breakthrough in trade talks with Trump at the G7 summit. Nevertheless, Japan hopes for a balanced deal that protects its auto industry. Despite these challenges, analysts say the BOJ may hike rates later in the year.

“We expect domestic demand to stay strong,” said Katsutoshi Inadome of SuMi TRUST. “If conditions improve, the BOJ can resume rate increases.” In summary, BOJ slows bond taper, holds rates, and keeps its focus on stability amid global uncertainty.