(Research Paper) Market Operations in Fiscal 2025

In fiscal 2025, the Bank of Japan focused on maintaining price stability at a 2 percent target, employing monetary policy guided by the short-term interest rate. The overnight call rate stayed near 0.5 percent until the December 2025 Monetary Policy Meeting (MPM), then moved to around 0.75 percent. At the June 2025 MPM, the Bank assessed its plan to reduce its JGB purchases by about 400 billion yen each quarter until January-March 2026, and 200 billion yen each quarter from April-June 2026, reaching about 2 trillion yen by January-March 2027.

The uncollateralized overnight call rate remained stable at a level slightly below the Complementary Deposit Facility rate, driven by active borrowing by regional banks and financial institutions. The GC repo rate also remained close to the excess reserve balance rate, especially in the second half of 2025 as bond supply and demand eased and overseas investment demand decreased.

Long-term interest rates rose significantly throughout fiscal 2025, influenced by the Bank's policy rate increase, upward revisions of future policy rate expectations, and inflation vigilance due to higher crude oil prices.

In JGB markets, the Bank reduced its monthly purchases by around 400 billion yen each quarter for the January-March 2026 quarter and 200 billion yen each quarter from April-June 2026, totaling 8.7 trillion yen in the first quarter of 2026. Purchases prioritized reducing segments with high shares in monthly issuance amounts, adjusting the reduction amount based on market conditions and demand.

The Securities Lending Facility maintained daily operations for all available JGBs, while expanding the applicability of off-the-run issues in cases where reduced Bank purchases improved JGB market liquidity. Overall, JGB market supply and demand conditions remained tight, with low acceptance rates for bids and borrowed JGB issues.