The Bank of Japan is considering whether to pause further cuts to government bond purchases from fiscal 2027, as a surge in yields tests the central bank’s effort to unwind decades of extraordinary stimulus.

The BOJ will review its bond taper plan at its June 15 and 16 policy meeting. The current schedule runs through March 2027 and aims to reduce monthly Japanese government bond purchases to about 2 trillion yen by the first quarter of 2027.

The discussion comes after Japan’s 10 year government bond yield climbed to 2.8% in May, its highest level in about 29 years. The move highlighted the market strain created by the BOJ’s shift away from ultra loose policy.

The central bank began reducing bond purchases in 2024 as part of Governor Kazuo Ueda’s broader effort to normalize policy. The BOJ initially cut planned monthly buying by about 400 billion yen per quarter, then slowed the pace to 200 billion yen per quarter from April to June 2026.

Officials are now debating whether to keep purchases near 2.1 trillion yen per month from fiscal 2027 rather than continue shrinking the program. Reuters reported that the board remains divided, with some members prioritizing market stability and others pushing for a faster balance sheet reduction.

The stakes are unusually high because the BOJ still owns nearly half of Japan’s government bond market. That gives every change in its purchase plan an outsized effect on yields, liquidity, and the government’s borrowing costs.

The yield surge has also become harder to separate from politics. Prime Minister Sanae Takaichi’s government is managing fiscal pressure at a time when higher borrowing costs threaten to make Japan’s debt burden more expensive.

For markets, a taper pause would not mean the BOJ is returning to aggressive stimulus. It would signal that normalization has limits when bond market volatility starts to threaten financial stability.

The June meeting may also include debate over another rate hike, with inflation pressure still elevated. That creates a difficult policy mix. The BOJ may need to tighten short term rates to fight inflation while slowing bond tapering to avoid destabilizing long term yields.

For investors, the message is that Japan remains one of the biggest macro swing factors in global markets. Higher JGB yields can pressure global bonds, strengthen the yen, and tighten liquidity conditions that affect risk assets from equities to Bitcoin.