Japan to sell more short-dated bonds next year as BOJ shifts policy

Japan's finance ministry plans to increase sales of government bonds for the first time in four years, with more issues of shorter-dated debt, as the Bank of Japan exits from ultra-loose policy.

Market issuance by periodic auctions will be brought to 172.3 trillion yen($1.09 trillion) in the fiscal year starting April 2025, up by 1.3 trillion yen from this fiscal year, on an initial budget basis, the Ministry of Finance (MOF) said on Friday.

A large increase will be seen in the sale of 28.8 trillion yen of five-year bonds, 1.2 trillion yen more than this year, while sales of two-year, 10-year, and 20-year bonds will be unchanged.

The Bank of Japan's retreat from a decade-long radical stimulus programme is pressuring the government to shorten the duration of bonds as market players seek to reduce risks around interest rate hikes.

The government also needs to fill a huge hole left by the BOJ's diminishing presence in the JGB market.

After buying bonds aggressively to reflate growth, the central bank now owns roughly half of total Japanese government bonds, with more than 80% ownership in most issues of 10-year bonds.

The BOJ in July decided on a quantitative tightening (QT) plan that would halve monthly bond buying to 3 trillion yen as of January-March 2026.

The MOF reduced sales of super-long bonds, with maturities of 30 and 40 years, to reflect shrinking demand from life insurers, as they have mostly completed purchases for meeting new capital requirements.

The announcement was in line with a Reuters report on Thursday.

($1 = 157.7600 yen)