The Bank of Japan has been gradually reducing its outright purchases of long-term Japanese government bonds (JGBs) since summer 2024, a move based on a plan decided at its Monetary Policy Meeting. The aim is to improve the functioning of JGB markets in a way that supports stability.
According to a review published by the Bank, the impact of these reductions on interest rate formation has gradually become evident. The recent rise in long-term interest rates has been partly driven by fundamental factors, such as the increase in underlying inflation.
The report was published in August 2026, reflecting the Bank's latest assessment.
The functioning of JGB markets has been steadily improving as the Bank makes progress in reducing its purchases. Long-term interest rates are now being formed more freely in financial markets, while Japanese investors—including banks and households—have gradually increased their JGB holdings.
However, such portfolio adjustments by investors are likely to take time. The Bank said it will continue to carefully monitor these developments, as well as trends in JGB markets and their functioning.
