Why did the Bank of Japan delay its bond purchase reduction plan?

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Bank of Japan Postpones Bond Purchase Reduction Decision to July Meeting

The Bank of Japan has deferred its planned reduction in bond purchases, with a final decision now slated for its July meeting. This move signals a cautious approach as the central bank navigates its path toward normalizing monetary policy after an extended period of ultra-loose conditions. While officials did not adjust interest rates at the recent meeting, the delay in quantitative tightening, which involves reducing bond holdings, has been a point of focus for market participants.
Market Reaction to Deferred Tightening

The announcement of the deferred bond purchase reduction led to a notable depreciation of the yen, which fell to over 158 against the US dollar. Conversely, the prospect of sustained lower borrowing costs provided a boost to the Nikkei stock index, which saw gains. Traders had anticipated an immediate commencement of the winding down of bond purchases, and the postponement was met with disappointment, impacting currency markets.
Context of Monetary Policy Normalisation

The Bank of Japan has been in the process of normalising its monetary policy, having previously lifted interest rates out of negative territory in March, marking the first such increase in 17 years. The consideration of reducing bond holdings, known as quantitative tightening, was widely viewed as the subsequent step in this process. The persistent weakness of the yen against the US dollar, exacerbated by the bank's stance on its ultra-loose policy compared to other central banks maintaining higher rates, has been a significant factor in policy discussions.
Expert Commentary on Policy Direction

Market analysts, such as Andrew Jackson of Ortus Advisors, have expressed that the market perceives the decision as not being a step in the correct direction. Jackson suggests that the Bank of Japan needs to accelerate its reduction of Japanese Government Bond (JGB) purchases beyond current signals. He further commented that failing to reduce JGB purchases and continuing with currency intervention would represent a substantial and unwarranted expenditure of resources. Equity traders had been closely monitoring the announcement, as any tightening measures would typically lead to higher Japanese yields and interest rates, making domestic assets more appealing for investors seeking better returns.

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Why did the Bank of Japan delay its bond purchase reduction plan?

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