What Happened The Last Time A Major Central Bank "Tapered" QE?

After having followed a zero interest rate policy strategy and facing a further deteriorating economy in an environment of falling prices (deflation), the Bank of Japan (BoJ) announced the introduction of QE on 19 March 2001 and kept it in place until 9 March 2006. The BoJ chose for a very orderly and gradual unwinding of its government securities portfolio, by continuing its regular purchases of these securities (i.e a taper and not sale). The market rejoiced at the normalization for a week or 2… before dropping 24% in the following 2 months. Of course, that was a “policy mistake”; the Fed knows this time is different.