The Bank of Japan is seen as the last grown-up in the room actively filling the global liquidity punch bowl with both hands.
That's why a slight tweak to its bond-buying program caused a flurry across financial markets Tuesday, sparking speculation it was joining the Federal Reserve and European Central Bank in cutting back on asset purchases, a move that could ultimately help drive up global interest rates.
On Tuesday, the BOJ modestly trimmed its purchases of Japanese government bonds by about $10 billion in the 10- to 25-year maturities and another $10 billion in maturities of more than 25 years. The yen jumped about a half percent to about 112.60 to the dollar, and bond yields rose. The U.S. 10-year yield also moved higher, breaking above the key 2.50 percent to as high as 2.55 percent. Meanwhile, the 10-year JGB yield moved in a range of about 0.16 and saw a high of 0.074 percent.
But some strategists say while the BOJ may have sent a powerful signal, it is just acting on a technicality that comes with changes it made to its bond purchase program back in 2016. Unlike the U.S. and Europe, where central banks have targeted the balance sheet size, the Japanese central bank is targeting interest rates and its purchases are based on prices.
"I think it's too early to proclaim the easy conditions in Japan are over. That said, I do think it's constructive and it shows how sensitive the markets are to any potential change," said Greg Peters, senior portfolio manager at PGIM Fixed Income.
The Bank of Japan has been a poster child for central bank easing, taking its rates to negative levels and buying all types of assets, including stocks.
"They're still buying ETFs, J-REITs, corporate paper. They changed how they're easing, but they're still easing," said Marc Chandler, head of fixed-income strategy at Brown Brothers Harriman. "I think the market is overinterpreting this, partly because of their positions. They're short yen. They're long euros. They're being squeezed on both legs today."
The Bank of Japan is still in full-throttle easing mode, while the Fed and ECB are slowing down their programs. The Fed is the furthest along, having hiked interest rates five times so far after taking them to zero in the financial crisis. The Fed is on track to raise interest rates at least three more times this year, and it is also moving to shrink its balance sheet by reducing purchases of securities to replace those that are maturing.
The ECB is not yet hiking rates and is still in the middle of quantitative easing, but it is slowing down its purchases fairly dramatically. As of last Tuesday, it cut its asset purchases in half, and there's talk it could end the program later in the year.