Mizuho: The final goal of the Bank of Japan's QT is still unknown, while the long-term supply and demand of Japanese bonds are supported by short-term factors.

Sumitomo said that the June monetary policy meeting did not specify to what extent the Bank of Japan plans to advance quantitative tightening (QT). Comments made by BOJ Governor Kuroda indicate that Japan still has a long way to go before the next rate hike. Although the BOJ's midterm review of its bond purchase program largely aligned with market expectations, the bank did not present any plans for the period after April 2027, leaving the extent of the reduction in bond purchases unclear. Ahead of meetings with the Ministry of Finance and primary dealers, the market expected the department to modify its Japanese government bond issuance plan. While the expected decrease in super-long Japanese government bond supply largely fell within market expectations, Sumitomo believes this could have a significant impact on supply and demand dynamics. The Bank of Japan also released the bond purchase operation schedule for July to September 2025, maintaining its planned purchase amount of 10 to 25-year Japanese government bonds, despite cuts in the previous quarter. Sumitomo believes this indicates that, for now at least, the BOJ intends to take a cautious approach to reducing purchases of super-long Japanese government bonds, which should be a small positive factor for the supply and demand situation in the super-long term sector. At the same time, the bank did not provide any plans for the period after April to June 2027, stating that a decision will be made in a year. The bank also did not provide any information on how much it plans to reduce bond purchases. With plans for the period after April to June 2027 currently on hold, and a policy committee member opposing a decision to slow the pace of reduction, Sumitomo believes the market must consider the possibility that the reduction will continue in the period after April to June 2027, leading to a significant decrease in monthly purchase levels well below 2 trillion yen. This could be seen as having a small negative impact on bond supply and demand.