19 June 2025 | Other

Bank of Japan's cautious stance on monetary policy may keep country's capital overseas

Bank of Japan's cautious stance on monetary policy may keep country's capital overseas

According to Reuters, the Bank of Japan (BOJ) is taking a cautious approach to reducing its balance sheet. This decision may delay the repatriation of capital to Japan and slow the convergence of yields between foreign and domestic bonds.

Amid current economic uncertainty and recent volatility in the securities market, Japan's financial regulator announced on Tuesday it would halve the pace of balance sheet reduction by 2026. The quarterly amount will be cut to 200 billion yen ($1.38 billion).

These financial sector adjustments continue changes initiated last August when the regulator raised interest rates from near-zero or negative levels. BOJ Governor Kazuo Ueda suggested Japan's government bond yield curve could flatten if the current monetary policy adjustments continue.

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