While it is true that a reduction in bond purchases would tend to shoot upward the bond rates also is true that this will increase the value of the dollar, which would tend to put upward pressure on dollar yen cross and therefore benefit japanese exporters and with it the Japanese stock market.
From the fundamental point of view I do not find consistency with the argument, just as it is not consistent from the technical standpoint.
Looking at the performance of the Nikkei 225 and compare it with what have done, by one side, the USDJPY , then the Dollar Index and finally in the U.S. Treasury bond, we see that first, the only instrument that maintains a clear correlation with the Nikkei is the USDJPY .
However, while these two have been making higher highs since Sinzo Abe , Japan's prime minister, began to promote his plan to pull Japan out of its lengthy deflation, the behavior of the dollar and U.S. Treasury bonds have remained in a range, not a trend.
Besides, if we compare the movement of recent stock market fall in the Japanese yen and the dollar index with the previouse rise, we will see that the movement has been terribly stronger for the Japanese market than for the dollar yen and even smaller for the dollar index .
The climax comes when we see that at the time of the great fall for the Nikkei which has been accompanied by a fall of the dollar USDJPY (in a half of it's proportion) and the dollar Index , the bond prices in the U.S. have remained virtually lateralized.
If there is a change in the market expectations to QE3 be reduced from the Fed (and this was so correlated with what the Asian markets are reacting) don't you think that the prices of these bonds should have all ready plummeted as strongly as the Japanese stocks did?.