[1/2]Shoppers check groceries at a supermarket in Tokyo, Japan, January 20, 2023. Portal/Issei Kato/File Photo Acquire License Rights
- The BOJ is keeping its short- and long-term interest rate targets unchanged
- The board is revising the inflation forecasts for 2023 and 2024
- Governor Ueda is expected to inform the media of the decision at 06:30 GMT
TOKYO, Oct 31 (Portal) – The Bank of Japan on Tuesday further loosened its grip on long-term interest rates by adjusting its policy to control bond yields, taking another small step toward ending its massive stimulus program.
The nine-member board also revised its price forecasts and expects inflation to be well above the 2% target this year and in 2024. This underlines the growing belief that the conditions for exiting ultra-loose monetary policy are being created.
As widely expected, the BOJ maintained its yield curve control (YCC) target of -0.1% for short-term interest rates and the 10-year Treasury yield at around 0%.
But the BOJ redefined 1.0% as a loose “ceiling” rather than a hard cap and removed a pledge to defend the level through offers to buy an unlimited amount of bonds.
“Given the extremely high level of uncertainty about the economy and markets, it is appropriate to increase flexibility in implementing yield curve control,” the BOJ said in a statement announcing the decision.
The decision highlights how rising global bond yields and persistent inflation are making it increasingly difficult for the BOJ to maintain its controversial control over bond yields.
Amid criticism that its strong defense of the cap is causing market distortions and an unwanted fall in the yen, the BOJ raised its de facto yield cap to 1.0% from 0.5% in July.
Since then, rising global bond yields have put the BOJ in a difficult position, with the 10-year Japanese government bond yield rising to a new decade high of 0.955% just hours before Tuesday’s decision.
While the adjustment could reduce the need for the BOJ to expand bond purchases, it could solidify market expectations of an early end to the YCC and negative interest rates.
Markets are focusing on Gov. Kazuo Ueda’s post-meeting news conference for clues on how quickly the bank might move to a full exit from loose monetary policy.
Inflation remained above the BOJ’s 2% target for the 18th consecutive month in September. Surveys have shown rising inflation expectations, driving down real borrowing costs.
But among global central banks, most of which have aggressively raised interest rates in recent years to combat rampant inflation, the BOJ has remained a dovish outlier, plagued by a tradition of premature tightening that has been criticized by politicians it delayed the exit from chronic deflation.
Despite Ueda’s repeated assurances that ultra-low interest rates will remain in place, markets are already predicting a policy change early next year.
Nearly two-thirds of economists polled by Portal expect the BOJ to end negative interest rates next year.
Reporting by Leika Kihara and Tetsushi Kajimoto; Editing by Sam Holmes
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