BOJ loosens grip on yields, lays groundwork for ‘stealth’ tapering

BOJ loosens grip on yields, lays groundwork for ‘stealth’ tapering

News: BOJ loosens grip on yields, lays groundwork for ‘stealth’ tapering.

TOKYO (Reuters) – The Bank of Japan on Friday widened the range in which long-term interest rates can hover around their target as part of a series of measures to make their ultra-light policies more sustainable in a longer battle to fuel inflation.

After its two-day political meeting, the central bank also removed its explicit guidance on buying Exchange Traded Funds (ETFs) at an annual rate of around 6 trillion yen, giving it more room to reduce its market incentives.

Rather than buying at a set pace, the BOJ said it would only buy ETFs when needed, while maintaining a 12 trillion yen cap on annual purchases.

As widely expected, the BOJ has maintained its target of -0.1% for short-term rates and 0% for 10-year bond yields as part of its YCC (Yield Curve Control) policy.

In a policy instrument review announced on Friday, the BOJ said it would allow long-term interest rates to rise and fall 0.25% around their target, rather than 0.2%.

In December, the BOJ unveiled a plan to conduct a review of its tools in March to make them “more sustainable and effective” as the COVID-19 pandemic extends its battle against growth and inflation with massive monetary support.

BOJ officials have dropped evidence that the central bank will allow long-term interest rates to fluctuate more around its 0% target in order to breathe life into a market that has been dormant by its dominance.

They have also signaled a willingness to make the BOJ’s ETF buying more flexible so that purchases can be slowed down significantly when stock markets are booming.

The BOJ has already “camouflaged” risky asset purchases by slashing purchases after ramping them up last year to calm pandemic-ridden markets.

The BOJ’s challenge would be to convince the markets that by making its policy framework sustainable, it can ultimately bring inflation to its elusive 2% target.

Japan’s core consumer prices fell 0.4% yoy in February, data showed on Friday. They fell more slowly than in January, but remained a long way from the BOJ’s goal.

Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Kaori Kaneko and Daniel Leussink; Adaptation by Shri Navaratnam and Sam Holmes

Original Source © Reuters

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