Business

Possible BOJ next step as markets hit yield policy According to Reuters


© Reuters. FILE PHOTO: A man walks past the Bank of Japan headquarters in Tokyo, Japan, June 17, 2022. REUTERS/Kim Kyung-Hoon/File Photo

By Leika Kihara

TOKYO (Reuters) – Markets are testing the Bank of Japan (BOJ), looking to break its resolve to limit bond yields as soon as its policy decision on Wednesday, as inflation picks up challenge the ultra-easy monetary policy of the central bank.

Here are the options the BOJ could make to change its yield curve control (YCC) policy, apply a negative rate of 0.1% on some funds deposited with the central bank, and target Spend 10-year government bond yields in the zero range.

STOP THINKING

The BOJ’s decision last month to widen the range around its 10-year yield target failed to remove the market distortions caused by their massive bond purchases, instead keeping the market in check. check for a 0.5% increase in the range.

Many BOJ officials want more time to gauge the impact of the December adjustment, seeking clarity on whether wages and inflation are rising in a cycle of mutually forced growth. are not.

With Governor Haruhiko Kuroda repeating his call to keep policy extremely loose, the BOJ may opt to stay in place until his successor takes power in April.

EDIT MORE CODE

Bond sellers broke the BOJ’s 0.5% limit on Friday, less than a month after a policy adjustment, forcing the central bank to make emergency purchases to bring rates down.

Its reliability has been tested, the BOJ may respond with additional steps.

It can make technical adjustments to flatten the yield curve, such as adjusting for bond buying or other market activity. Or it could widen the range around the 10-year yield target.

Many policymakers are cautious about widening the band beyond 1 percentage point because that could make it difficult for the BOJ to argue that they are guiding 10-year yields “around 0%.”

GIVING UP, INCREASE OUTDOOR OBJECTIVES

There’s a small chance the BOJ could raise its 10-year yield target or abandon the YCC altogether.

The BOJ had hoped to wait for more evidence that wages would rise enough to keep inflation sustainable around its 2% target, before adjusting its yield targets.

Doing so now would go against Kuroda’s pledge to keep monetary policy extremely loose until recent cost inflation is replaced by rising prices due to sustained strong demand. .

The BOJ would describe any such move as a modest stimulus pullback, rather than the start of a series of rate hikes. It can commit to buying enough bonds to prevent any sudden, disruptive increases in borrowing costs.

EDIT GUIDE

The BOJ could revise its guidance on its commitment to keep rates at “current or lower” to guidance with a more neutral stance on the rate outlook.

Any such move would be a clear sign that the BOJ expects economic conditions to stabilize for them to gradually raise rates.

END OF NEGATIVE RATE

The BOJ could waive the 0.1% fee it applies to a small amount of excess reserves that financial institutions deposit to the central bank.

After removing that negative interest rate, the BOJ can begin paying interest on excess reserves to recover liquidity from the economy.

The BOJ only intends to take such a step considering that the Japanese economy has enjoyed a positive cycle in which rising prices generate higher wages, giving households more purchasing power. than.

An end to negative interest rates will ease the pain of commercial banks, which have seen their profits shrink after years of extremely low interest rates. But it would cool the economy by raising interest rates on bank and mortgage loans.

Therefore, the BOJ will not want to rush to pull the trigger. Any such move would likely accompany or take place after the end of the 10-year yield target.



Source by [author_name]

news7h

News7h: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, Sports...at the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Back to top button