For more than a decade, the Bank of Japan was the buyer of last resort in the world’s second-largest bond market. Now it’s becoming the seller nobody expected to move this fast.
The BoJ’s monthly Japanese Government Bond purchases have dropped to 2.9 trillion yen for the January-March 2026 quarter, the lowest level since the central bank launched its quantitative and qualitative easing program back in April 2013. Its total balance sheet has contracted by roughly 94.3 trillion yen, or 12.6%, from the 2024 peak. JGB holdings alone are down more than 10% from recent highs.
The unwind playbook
The reduction plan traces back to a decision made in July 2024, when the BoJ laid out a structured taper schedule. The playbook called for cutting monthly purchases by approximately 400 billion yen per quarter through the January-March 2026 period, then slowing the pace to 200 billion yen per quarter after that.
The target: monthly purchases of around 2 trillion yen by the January-March 2027 quarter.
And it’s not just bonds. The central bank has started selling equity ETFs valued at approximately 330 billion yen annually, along with J-REITs at about 5 billion yen per year.
Yields are waking up
Long-term JGB yields reached 2.35-2.40% in late March 2026, the highest level since February 1999.
The BoJ has indicated it plans to remain flexible and step in if needed to support market stability, but the overall direction is clear: less intervention, more price discovery.
This matters beyond Japan’s borders. JGBs are a foundational asset in global fixed income portfolios, and Japanese investors are among the world’s largest holders of foreign bonds. When domestic yields rise enough to become attractive again, capital that flowed into US Treasuries, European sovereigns, and other markets over the past decade could start flowing home.
What this means for markets
For the yen, higher yields tend to be supportive. The currency has been under pressure for years partly because of the enormous gap between Japanese and US interest rates. As that gap narrows, the yen carry trade, where investors borrow cheaply in yen to invest in higher-yielding assets elsewhere, becomes less attractive.
Domestically, the transition carries real risks. Japanese corporations and the government itself have grown accustomed to ultra-low borrowing costs. Japan’s government debt-to-GDP ratio remains the highest among developed economies, and even modest increases in debt servicing costs eat into fiscal space quickly.