BOJ should revise policy if key bond yield keeps rising, economists say

Author of the article: TOKYO — The Bank of Japan (BOJ) should revise its yield curve control (YCC) policy or scrap it if the benchmark Japanese government bond (JGB) yield keeps rising to the upper limit of the central bank’s range, one third of economists surveyed by Reuters said. The BOJ in recent weeks has…
BOJ should revise policy if key bond yield keeps rising, economists say

Author of the article:

TOKYO — The Bank of Japan (BOJ) should revise its yield curve control (YCC) policy or scrap it if the benchmark Japanese government bond (JGB) yield keeps rising to the upper limit of the central bank’s range, one third of economists surveyed by Reuters said.

The BOJ in recent weeks has defended its ultra-low interest rate policy under which it pledges to keep 10-year yields around 0%, in contrast with the U.S. Federal Reserve which is pushing aggressively for sizeable rate hikes.

Under YCC, the BOJ sets an implicit band around its 0% target and allows long-term rates to move up and down by 0.25%.

But with moves staying stubbornly near the upper end of that range, at a time when the yen has plunged to two-decade lows, the central bank has stepped in to buy debt repeatedly from last month to defend the 10-year yield target.

Uncertainty in the global economy spurred by soaring energy and raw material prices largely due to Russia’s war in Ukraine as well as supply chain disruptions have caused inflation to surge in the United States and elsewhere, prompting some central banks to hike rates already.

“The United States has become aggressive in monetary tightening, while Japan is sticking to its easy policy,” said Yusuke Shimoda, senior economist at Japan Research Institute.

“The Bank of Japan has to take some kind of action as there’s no doubt upward pressure on interest rates will get stronger due to that gap in monetary policy.”

Five economists said the BOJ should raise the upper range of the YCC band if the 10-year JGB yield keeps rising to it.

“One possibility is to widen the allowable range to 0.50% from the current 0.25%,” Shimoda added.

Four others in the poll said the BOJ should target yields with a shorter maturity than the 10-year bond, while one economist said it should give up its 0% target and YCC entirely.

The 10-year JGB yield stood at 0.245% on Friday.

At its two-day rate review ending next Thursday the central bank is widely expected to keep its short-term interest rates at -0.1% and hold onto its long-term rate target.

The BOJ last widened the yield band under YCC in March 2021, from a prior range of 0.20% around its zero percent target.

“It’s necessary for the BOJ to explain whether the fluctuation range is still appropriate,” said Mari Iwashita, chief market economist at Daiwa Securities.

Eighteen of 28 economists surveyed said the BOJ should keep offering to buy unlimited amounts of JGBs if the 10-year yield keeps rising to the bank’s upper range.

Japan’s economy was expected to expand an annualized 5.1% in the current quarter, slightly above March’s prediction of 4.9%, according to the median forecast of more than 40 analysts in the April 11-21 poll.

The world’s third-largest economy is projected to grow 2.5% in the current fiscal year that began this month, and 1.6% in fiscal 2023 after an expected 2.3% expansion in fiscal 2021.

Core consumer prices, which exclude volatile fresh food prices, will rise 1.7% this fiscal year and 0.8% in fiscal 2023, after a small 0.1% in the previous fiscal year, the poll showed.

(For other stories from the Reuters global economic poll: ) (Reporting by Daniel Leussink; Additional reporting by Kantaro Komiya; Polling by Md Manzer Hussain and Vivek Mishra; Editing by Himani Sarkar)

Financial Post Top Stories

Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.

By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300

Read More

Total
0
Shares
Leave a Reply

Your email address will not be published.

Related Posts
Yuan jumps to month high after China eases some COVID measures
Read More

Yuan jumps to month high after China eases some COVID measures

This advertisement has not loaded yet, but your article continues below. Author of the article: Article content SHANGHAI — China’s yuan extended gains against the dollar on Friday afternoon, underpinned by the government’s decision to ease some strict COVID-19 prevention measures. The yuan traded both onshore and offshore jumped following the decision. The onshore yuan…
Lula Gets Married in Brazil, Boosting His Family-Man Credentials
Read More

Lula Gets Married in Brazil, Boosting His Family-Man Credentials

Author of the article: Bloomberg News Daniel Carvalho (Bloomberg) — Brazil’s presidential front-runner, Luiz Inacio Lula da Silva, is getting married in a move that’s likely to help him rejuvenate his image while boosting his appeal with more conservative voters.  Lula, 76, exchanged vows with sociologist Rosangela Silva, 56, in a private ceremony in Sao…
BHP Vows to Stay Out of Lithium Rush With Shortages Set to Fade
Read More

BHP Vows to Stay Out of Lithium Rush With Shortages Set to Fade

Author of the article: Bloomberg News James Attwood (Bloomberg) — In a world of surging metal prices, lithium stands out as booming electric-vehicle sales send the battery component into the stratosphere. Conspicuously, the world’s top mining company has no plans to join the rush. For BHP Group, the frenzied talk about looming lithium shortages in…