Japan PM Urges BOJ to Buy More Bonds if Rising Yields Threaten Economy

Japan's Prime Minister Sanae Takaichi has reportedly asked the Bank of Japan (BOJ) to increase its purchases of government bonds whenever necessary to prevent a sharp rise in long-term interest rates.

The request was made during a meeting with BOJ Governor Kazuo Ueda in May, reflecting the government's concern that higher borrowing costs could slow Japan's economy and place additional pressure on public finances.

The report, first published by Japanese news agency Jiji, comes as the BOJ continues to gradually move away from its long-standing ultra-loose monetary policy. Investors are closely watching how the central bank manages this transition while keeping financial markets stable and supporting Japan's economic recovery.

• Japan urges BOJ to increase bond buying if long term yields rise
• BOJ faces pressure to balance policy normalisation and market stability
• Rising bond yields remain a key concern for Japan economy and finances

Concern Over Rising Bond Yields

During the meeting, Takaichi reportedly urged the central bank to step in and buy more Japanese government bonds whenever market conditions required it. The aim was to prevent bond yields from rising too quickly, which could make borrowing more expensive for businesses, households and the government.

Japan carries one of the world's largest public debt burdens, making changes in bond yields especially important. Higher interest rates can increase the government's debt servicing costs while also affecting loans, mortgages and business investment.

According to the report, Governor Ueda acknowledged the concerns but made it clear that the BOJ would continue to make policy decisions based on economic data and market conditions rather than political requests. He reportedly said the central bank would act appropriately whenever necessary to maintain financial market stability.

The discussions have once again highlighted the close coordination between Japan's government and the BOJ, even as the central bank continues to stress its independence in setting monetary policy.

BOJ Moves Carefully on Policy

The Bank of Japan has been slowly reducing its massive bond-buying programme after years of using aggressive monetary easing to fight deflation and support economic growth. The shift marks one of the biggest changes in Japan's monetary policy in decades.

Last year, the BOJ began scaling back its bond purchases as inflation became more stable. However, concerns over a rapid rise in long-term interest rates led the central bank to slow the pace of those reductions earlier this year.

The BOJ currently plans to purchase around 2 trillion yen (about US$12.7 billion) worth of Japanese government bonds each month. Officials believe maintaining this level of buying will help keep financial markets stable while allowing the bank to gradually reduce its extraordinary support measures.

Recent research by the BOJ also suggested that its reduced bond purchases have had only a limited impact on long-term interest rates. Instead, inflation, investor sentiment and global market trends continue to play a larger role in determining bond yields.

Japan's policymakers are trying to strike a careful balance between controlling inflation, supporting economic growth and ensuring stable financial markets. As wages continue to rise and inflation remains above the BOJ's long-term target, the central bank faces increasing pressure to normalise policy without disrupting the economy.

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Markets will now closely watch the BOJ's upcoming policy meetings for further guidance on interest rates and monetary policy. Any decision to increase or reduce bond buying could influence borrowing costs, government finances and investor confidence as Japan continues its gradual shift away from years of ultra-loose monetary policy.