The Bank of Japan's interest rate hike faces obstacles, and Mizuho calls for accelerating the reduction of bond purchases

According to the Zhitong Finance APP, Kenya Koshimizu, co-head of the Global Markets Division at Mizuho, stated that the Bank of Japan should accelerate the pace of reducing government bond purchases, as the possibility of pausing interest rate hikes will provide the Bank of Japan with greater flexibility to adjust its reduction plans.

Koshimizu made the above call ahead of the Bank of Japan's review of its existing bond reduction plan in June.

The voices of major market participants like Mizuho will form the basis for the upcoming review, as the Bank of Japan's influence in the bond market has diminished, increasing the importance of private banks, as there are hopes that private banks will once again become the main buyers of Japanese government bonds.

Koshimizu stated last Friday, "The pace of reducing bond purchases last year was very moderate," as there were concerns that reducing bond purchases while raising interest rates could lead to a sudden spike in bond yields.

However, he indicated that due to the uncertainty of U.S. policies and the global economy, the Bank of Japan is temporarily finding it difficult to continue raising interest rates, "the Bank of Japan may have greater flexibility in adjusting its reduction plans."

U.S. President Trump's tariff plans have shaken financial markets, raising concerns about a global economic recession, complicating the Bank of Japan's path to interest rate hikes.

According to the quantitative tightening (QT) plan established last year, the Bank of Japan is set to reduce bond purchases by approximately 400 billion yen each quarter, halving the monthly purchase amount to 3 trillion yen by March 2026.

Koshimizu declined to comment on what would be an appropriate pace of reduction but added, "It doesn't have to be as moderate as last year."

He stated, "We should now focus on restoring the functionality of the Japanese bond market," especially at a time when the largest shift in U.S. policy in decades has led to turmoil in global markets.

The Bank of Japan holds about half of the outstanding Japanese government bonds, which has put pressure on the market's liquidity and price discovery function.

When asked under what conditions Mizuho would begin to fully purchase Japanese government bonds, Koshimizu said it would "depend on specific circumstances."

He hinted that after reducing risk exposure in recent years, purchasing U.S. Treasury bonds could be considered. "The uncertainty in the global economy has enhanced the appeal of highly liquid products," he stated.

Koshimizu expressed confidence in Japan's long-term prospects, as the exit from deflation has prompted Japanese companies to shift their focus from cost-cutting to promoting growth