RBA Opts for Cautious Rate Cut Amid Global Trade Uncertainty and Domestic Resilience

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The Bank of Japan will probably decide to stop reducing the amount of its government bond purchases in a plan for next fiscal year when authorities gather this month, as they eye a worrisome surge in JGB yields, according to a former BOJ board member.

Since last summer, the bank has been reducing its buying of government bonds by ¥400 billion ($2.8 billion) every quarter, but that process will come to a halt, former board member Makoto Sakurai said in an interview Monday in Tokyo.

“They are likely to make a stop,” Sakurai said. “They must be considering that yields will rise further if they go big on cutting bond purchases.”

Sakurai was speaking two weeks before the BOJ extends its current bond purchase plan into the fiscal year from April. Traders have been looking for hints regarding the likely pace of pullback, with BOJ watchers holding mixed views on what the optimum rate should be. A recent surge in super-long bond yields reflects the challenges for authorities pursuing a quantitative tightening path.

“It’s probably the most reasonable solution to halt for now and then mull it over later,” Sakurai said. “It’s a little risky to make a long-term commitment” when uncertainties are this high, he said.

Owing largely to US President Donald Trump’s tariff measures, the murky economic landscape is likely to keep Governor Kazuo Ueda’s board on hold, with the policy rate at 0.5%, until toward the end of this year, Sakurai said. Prior to any move higher, the central bank would need to confirm the resilience in business investment as well as how much room companies have to raise wages next year. Those data won’t be available until autumn, he said.

Sakurai’s forecast is more or less in line with the market’s. Traders see around a 70% chance of borrowing costs rising by the end of this year, according to overnight index swaps Monday.

“October seems a bit too early, but I wouldn’t rule it out,” Sakurai said. “It all depends on the data.”

The BOJ’s nine-member board next sets policy on June 17. A key focus will be on whether the central bank will continue to reduce the amount of government debt buying every three months from the second quarter of next year. At the current pace of cutbacks, monthly bond buying would slide to around ¥2.9 trillion by March.

At the BOJ’s hearings with bond market participants last month, there were diverse views on the right tempo to cut back debt buying in the future. One participant called for more aggressive cuts to purchases, while another urged that reductions be suspended temporarily, according to minutes of the gatherings released Monday.

The nation’s 30-year yield has come down to around 2.95% from 3.185% hit late last month, its highest since the tenor’s inception. Still, Japan’s bond market faces more challenges with debt sales later Tuesday and Thursday that may ramp up pressure on the government to adjust its borrowing plans and calm investor nerves.

Sakurai expects Japan’s yields to stay elevated, causing concerns at the Ministry of Finance over its implications for Japan’s finances. The government’s cost for debt servicing rose to about a quarter of its budget for this fiscal year, thanks partly to higher interest rates.

“They must be feeling that a higher yield could be problematic,” Sakurai said. “It’s not easy to proceed with further cutback in bond purchases for the BOJ.”

The BOJ remains the biggest holder of Japanese government debt, owning roughly half of the market after more than a decade of aggressive monetary easing. The bank began quantitative tightening last summer, five months after scrapping its negative interest rate and yield curve control program.

Source: Bloomberg Europe

Crucial US Treasury Update: Trade Agreements Expected by July 9th

In a recent statement that has captured the attention of financial markets and policy watchers alike, the US Treasury Deputy Secretary indicated that significant progress is being made on the international trade front. According to reports, some key Trade Agreements are anticipated to be finalized or see substantial breakthroughs before the critical date of July 9th. This development signals potential shifts in global economic dynamics and warrants a closer look at what it could mean for various sectors, including the broader financial landscape.

Why is July 9th a Key Date for Trade Agreements?

The specific context around the July 9th deadline wasn’t detailed in the initial report, but deadlines in trade negotiations often correlate with specific events, legislative calendars, or negotiation rounds. Reaching agreements by a set date can accelerate implementation and provide certainty to businesses and markets. For the US Treasury, finalizing trade terms is crucial as it directly impacts customs revenue, international capital flows, and overall economic stability. The push towards this deadline suggests a concerted effort to lock in terms on specific deals, potentially with key trading partners.

Understanding the types of agreements potentially being discussed is important. These could range from bilateral deals focusing on specific trade barriers or sectors to multilateral discussions aimed at broader frameworks. The nature and scope of these agreements will significantly influence their impact on global commerce and investment.

How Do Trade Agreements Influence Financial Policy and Stability?

Trade agreements are not just about goods crossing borders; they have profound implications for Financial Policy and overall economic health. Here’s how:

The US Treasury plays a vital role in these negotiations, advising on the financial implications, potential economic impacts, and ensuring that agreements align with domestic financial regulations and goals. Success in reaching these agreements by July 9th could be viewed positively by markets, signaling effective diplomacy and a clearer path for international trade.

What Does This Mean for the Economic Outlook?

Positive developments in Trade Agreements can significantly shape the Economic Outlook. Here are some potential effects:

Conversely, failure to reach agreements by the deadline, or reaching unfavorable terms, could introduce uncertainty and potentially dampen the positive economic outlook. The market reaction will likely depend on the specifics of the agreements and the perceived success of the negotiations.

Considering the Broader Global Policy Context

These anticipated Trade Agreements are part of a larger picture of Global Policy shifts. Nations are constantly renegotiating terms, forming new alliances, and adapting to changing geopolitical and economic realities. The US Treasury’s involvement underscores the financial dimension of these global interactions. Decisions made now will set precedents and frameworks for future international economic cooperation.

For observers of the financial world, including those in the cryptocurrency space, monitoring these traditional economic indicators and policy shifts is crucial. While cryptocurrencies operate on decentralized networks, their value and adoption are influenced by macroeconomic factors, regulatory environments, and overall market sentiment, all of which can be impacted by major trade and financial policies.

Actionable Insights and Looking Ahead

For market participants and those interested in the intersection of policy and finance, the period leading up to and following July 9th will be critical. Here are some actionable insights:

While the direct impact on cryptocurrencies might not be immediately obvious from a trade agreement announcement, shifts in global economic stability, investor confidence, and regulatory approaches stemming from such policies can create ripple effects throughout the entire financial ecosystem. A more stable and predictable global trade environment, facilitated by successful agreements, could potentially foster a more favorable climate for investment across various asset classes, including digital assets.

Conclusion: A Deadline Worth Watching

The statement from the US Treasury Deputy Secretary regarding expected Trade Agreements by July 9th highlights an important upcoming milestone in international economic relations. These developments are central to the US’s Financial Policy and have significant implications for the global Economic Outlook. While the specifics remain to be seen, the push towards this deadline underscores the importance placed on these negotiations. Monitoring the outcomes will provide valuable insights into the direction of Global Policy and its potential effects on markets worldwide. It’s a reminder that the traditional financial world and the emerging digital asset space are increasingly interconnected, with macroeconomic and policy decisions in one realm often influencing the other.

To learn more about the latest financial policy trends, explore our articles on key developments shaping Global Policy and Economic Outlook.

This post Crucial US Treasury Update: Trade Agreements Expected by July 9th first appeared on BitcoinWorld and is written by Editorial Team

Source: CryptoSlate

The Bank of Japan received a sizeable number of requests to maintain or slightly slow the pace of tapering in its bond purchases from fiscal year 2026 onward, minutes of a meeting between the bank and financial institutions showed on Monday.

Despite a recent spike in super-long yields, a significant number of bond market participants also urged the central bank to leave its existing bond taper plan through March 2026 unchanged.

The requests, made at a BOJ meeting with bond market participants on May 20-21, heighten the chance the central bank will proceed slowly in reducing its huge balance sheet.

The BOJ will conduct a review of its current taper plan and come up with a subsequent programme at its next policy meeting on June 16-17.

"From the viewpoint of predictability, the Bank should maintain the current pace of the reduction," one participant was quoted as saying in the minutes about the BOJ's plan for April 2026 onward.

The central bank has been slowing bond purchases since August last year to halve monthly buying to 3 trillion yen ($21 billion) by March 2026.

While the participants diverged on how much the BOJ should taper beyond April 2026, several called for reducing its monthly purchases to around 1 trillion yen to 2 trillion yen by the end of the new taper programme, the minutes showed.

One person called for eventually reducing purchases to zero, while another called for maintaining the current 3-trillion-yen monthly pace "for a while".

The new programme from April 2026 should display the BOJ's taper plan for a full year, one participant was also quoted as saying.

The BOJ's taper review comes at a delicate time. Yields on super-long Japanese government bonds (JGB) soared to all-time highs last month on weak investor demand, as political calls for big fiscal spending flare up ahead of an upper house election slated for July.

Many bond market participants warned of declining market liquidity for super-long bonds, with some calling for a response by the BOJ, according to the minutes.

"The Bank should consider making flexible responses for this zone," such as by suspending reductions in its bond buying or ramping up purchases of super-long bonds, the minutes showed.

Some called for making tweaks to the way the BOJ conducts its bond-buying operations so that it can more flexibly adjust the amount of super-long JGBs purchases.

Others, however, warned the BOJ against responding too much to swings in super-long yields.

"The deterioration in supply and demand conditions in the super-long-term zone is due to structural factors," such as weak investor demand relative to the size of issuance, one participant was quoted as saying. "There is thus limited room for the Bank to address the root cause."

The BOJ has lagged well behind global counterparts in whittling down crisis-era stimulus, having only exited last year a decade-long, massive stimulus aimed at pulling the economy out of stagnation. It also ended negative interest rates last year, though short-term borrowing costs are only 0.5%. The central bank still owns roughly half of outstanding JGBs.

Source: Reuters