(Bloomberg) -- Japan’s Ministry of Finance is weighing a plan to shift more of its bond issuance to shorter maturities, according to a draft proposal seen by Bloomberg, a major change as the central bank moves to cut purchases of government debt.

Finance Ministry officials have prepared a draft proposal that calls for increasing the proportion of issued bonds with shorter maturities. An expert panel is likely to endorse the broad contours of the plan on Friday.

The move comes as the Bank of Japan’s decision to cut its bond purchases encourages the government to seek new sources of funding. The BOJ held about ¥590 trillion ($3.7 trillion) in JGBs as of the end of March, representing more than half of the total outstanding. It’s necessary to reduce the amount of yield risk supplied to the market by shortening durations, according to the proposal, which also cites floating-rate bonds as an option.

Shortening maturities on bond sales would represent a stark shift from the recent trend in which the ministry has tended to extend the maturities on bonds it sells as the nation’s policy interest rates have stayed around zero for decades and the BOJ used its yield curve control mechanism to cap long-term yields.

The BOJ ended YCC in March, when it raised interest rates for the first time in 17 years. The bank said last Friday it will release details of its plans to reduce bond buying at the July 31 conclusion of its next policy meeting. Ahead of that disclosure, the bank is meeting with market participants to hear their views.

The finance ministry’s working draft, prepared ahead of a ministry meeting with market participants and experts on June 21, notes that shortening maturities would increase refinancing and interest risks for the government, so it recommends expanding the pool of government bond holders as much as possible.

The ministry sent out a questionnaire to market participants, including potential bond buyers such as insurance companies, banks and foreign investors, at the last panel meeting in May. The ministry plans to release the results of that survey in addition to its proposal for future issuance on Friday, the person said. 

The banking sector could become a major new customer to replace the BOJ, a respondent noted in the MOF’s survey. It suggests that the key to JGB management policy is to create an environment in which the banking sector can hold JGBs with confidence.

--With assistance from Sumio Ito.

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