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☆ Instant View: BOJ modifies bond yield control, re-defines long-term rate cap
▼ + stars: | 2023-10-31 | by ( ) www.reuters.com time to read: +10 min

But it's also likely the BOJ have their finger on the intervention button to cap any runaway rally on USD/JPY." Nevertheless, this is working in a way to increase the volatility of the global rates market. This means it will still have a certain distance until the BOJ exit from the negative rate policy." "A yield cap isn't a yield cap if you change it every time the market gets close." The Bank of Japan could lift the negative policy rate to zero over the coming year.

Persons: Kim Kyung, KYLE RODDA, MATT SIMPSON, JPY, it's, NOMURA, They've, TONY SYCAMORE, normalisation, TAKAYUKI MIYAJIMA, ROB CARNELL, they're, JEFF NG, TOM NASH, OMORI, SHOTARO KUGO, me, IZURU KATO, MARCEL THIELIANT, today's, FREDERIC NEUMANN, CHRISTOPHER WONG, BOJ's, Sherry Jacob, Phillips Organizations: National Printing Bureau, Bank of Japan, REUTERS, Bank of, Nikkei, SAXO, SONY, ING, UBS, CHIEF, DAIWA, OF, HSBC, Global, Thomson Locations: Tokyo, Japan, Bank of Japan, MELBOURNE, BRISBANE, SINGAPORE, TOKYO, U.S, SYDNEY, ASIA, PACIFIC, CHIEF JAPAN, stagflation, OF ASIA, YCC, HONG KONG

A man walks in front of the headquarters of Bank of Japan in Tokyo, Japan, January 18, 2023. For years, the government has kept borrowing costs, as measured by assumed interest rates, low, effectively allowing the Bank of Japan (BOJ) to bankroll debt. That is up from 25.25 trillion yen this year, the sources said, requesting anonymity as they were not authorised to speak publicly. For the current fiscal year, the annual budget hit a record 114 trillion yen, boosted by steps to cope with COVID. Social security accounts for nearly one-third of budget spending, making it the lion's share of the overall budget, followed by debt-servicing costs, which make up more than a fifth of the budget.

Persons: Issei Kato, Izuru Kato, Tetsushi Kajimoto, Takaya Yamaguchi, Sam Holmes, Alex Richardson Organizations: Bank of Japan, REUTERS, Rights, Totan, Thomson Locations: Tokyo, Japan, China, North Korea

But there's very high uncertainty on next year's wage negotiations and the sustainability of wage growth," Governor Kazuo Ueda told a briefing. The BOJ's decision contrasts sharply with that of the European Central Bank, which raised borrowing costs to a 22-year high on Thursday. NOT ENTIRELY DOVISHBank of Japan Governor Kazuo Ueda speaks at a group interview with media in Tokyo, Japan, May 25, 2023. The yen's recent decline could also heighten calls from politicians for the BOJ to tweak YCC, as it squeezes households and retailers by pushing up raw material import costs. "But it may be forced to act if the yen weakens further and drives up import costs, angering the public.

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The BOJ's decision contrasts sharply with that of the European Central Bank, which raised borrowing costs to a 22-year high on Thursday and signalled the likelihood of further hikes. Also this week, the U.S. Federal Reserve on Wednesday signalled it was not yet done with its fight against inflation. As widely expected, the BOJ maintained its -0.1% short-term interest rate target and a 0% cap on the 10-year bond yield set under its yield curve control (YCC) policy. An upgrade to the BOJ's inflation forecast in a quarterly review in July is seen as a done-deal, though central bank officials have said a rise in inflation alone won't automatically trigger a policy shift. Ueda has said solid, sustained wage growth must accompany rising inflation for the BOJ to contemplate a policy tweak.

Persons: Kazuo Ueda's, Ueda's, Shigeto Nagai, Izuru Kato, Shunichi Suzuki, Ueda, Leika Kihara, Kantaro Komiya, Sam Holmes Organizations: Bank of Japan, European Central Bank, U.S . Federal Reserve, Oxford Economics, Totan, Graphics, Thomson Locations: TOKYO, Japan

Ueda, a 71-year-old former Bank of Japan (BOJ) policy board member, will succeed incumbent Haruhiko Kuroda, whose second, five-year term ends on April 8, according to documents presented to parliament on Tuesday. Analysts expect Ueda, who had warned of the dangers of premature interest rate hikes in the past, to hold off on tightening monetary policy. "Ueda is likely to focus on theory and empirical analysis in guiding monetary policy," said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities. Upon parliament's approval, Ueda will chair his first BOJ policy meeting on April 27-28. A soft-spoken academic with a PhD from the Massachusetts Institute of Technology, Ueda is seen as a pragmatist who can adjust his views on monetary policy flexibly.

"This step will allow us to push down longer-term interest rates, without directly affecting supply and demand of the cash Japanese government bond (JGB) market," Kuroda told a news conference. Following its two-day policy meeting, the BOJ kept intact its yield curve control (YCC) targets, set at -0.1% for short-term interest rates and around 0% for the 10-year yield, by a unanimous vote. Reuters Graphics Reuters GraphicsThe central bank also made no change to its guidance that allows the 10-year bond yield to move 50 basis points either side of its 0% target. "By showing its resolve to use market tools more flexibly, the BOJ wanted to signal to markets it won't make big monetary policy changes under Kuroda." Market attention is already shifting toward monetary policy under Kuroda's successor, who will need to steer an orderly exit from decades of ultra-low rates.

The surprise decision sent the yen skidding against other currencies and bond yields tumbling the most in decades, as investors unwound bets they made anticipating the central bank would overhaul its yield control policy. At a two-day policy meeting, the BOJ kept intact its yield curve control (YCC) targets, set at -0.1% for short-term interest rates and around 0% for the 10-year yield, by a unanimous vote. The central bank also made no change to its guidance that allows the 10-year bond yield to move 50 basis points either side of its 0% target. Underscoring its resolve to keep defending the cap, the BOJ beefed up a key market operation tool to more effectively curb rises in long-term interest rates. "By showing its resolve to use market tools more flexibly, the BOJ wanted to signal to markets it won't make big monetary policy changes under Kuroda."

☆ As Kuroda bows out, Bank of Japan's rising hawks eye end to unloved yield cap
▼ + stars: | 2022-12-16 | by ( Leika Kihara | ) www.reuters.com time to read: +12 min

PUBLIC DISCONTENTAfter a tumultuous year for the world's third-largest economy, Japan's central bank and its leadership face a critical moment. While ruling out the need to ditch the yield cap now, Takata recently said he saw positive developments in wage growth. "The BOJ must start worrying about the possibility of inflation accelerating more than expected," he told Reuters, adding the BOJ may abandon its yield cap as early as next year. Such a reaction was seen in March when the BOJ was forced to pledge unlimited bond buying to defend its yield cap from speculative market attacks. "That's why the BOJ won't provide advance signals and remove the yield cap in a single step."

☆ BOJ to keep ultra-low rates, hold fire until global outlook clearer
▼ + stars: | 2022-12-15 | by ( Leika Kihara | ) www.reuters.com time to read: +5 min

Markets are rife with speculation that the BOJ will adjust its policy when Kuroda's second, five-year term ends in April. CONTENT WITH STATUS QUOAmid uncertainty over the global outlook and pace of Japanese wage rises, the BOJ is content with maintaining the status quo for now, the sources said. The BOJ expects the inflation rate to slow below its target next year because cost pressure will dissipate. Any chance of a BOJ policy adjustment will disappear if the Fed fails to tame inflation without pushing the U.S. economy into deep recession, analysts say. "But the BOJ will probably find it hard to phase out stimulus if the global economy is in bad shape," he said.

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