Instant View: BOJ widens band around long-term rate target

Instant View: BOJ widens band around long-term rate target

News: Instant View: BOJ widens band around long-term rate target.

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.

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 yield curve control policy.

REMARKS:

MASAAKI KANNO, CHIEF ECONOMIST, SONY FINANCIAL HOLDINGS, TOKYO

“The expansion of the long-term interest rate is in line with expectations. On the ETF side, it’s not surprising to cut the 6 trillion yen target as the BOJ has stopped buying ETFs as often as it used to.

“It’s a very small change. If the economy continues to grow and stock prices continue to rise, the BOJ will likely allow more flexibility in bond yields to plus or minus 0.3% or something like that. In this case, the bank should continue to adhere to its 10-year JGB return target of around 0%.

“There is still a long way to go before we get close to 2% inflation. What we need to see is a very clear sign that Japan’s inflation rate is accelerating further than zero. “

MASAFUMI YAMAMOTO, STRATEGIST OF CHIEF CURRENCY, MIZUHO SECURITIES, TOKYO

“There is no reason for the dollar-yen to react to the latest BOJ valuation results as it is close to what the media reported in advance.

“Even if the productivity of JGB yields increases, the change in US Treasury yields is much larger than that of JGB. For the dollar-yen, the change in the U.S. Treasury Department’s rate of return is a much more important driver than the change in the JGB rate of return.

“Not much will change in the BOJ’s purchase of ETFs. In their assessment, the BOJ said their ETF purchase is more effective when volatility is high and uncertainty is high. In this case, the larger the purchases, the greater the effect. “

DAISUKE UNO, CHIEF STRATEGIST, SUMITOMO MITSUI BANK

“From a foreign exchange point of view, there were no particular surprises. The BOJ has only examined options within the current framework of its simple policy.

“There isn’t much evidence that the BOJ has studied the exit strategy that speculators selling yen would fear most. You will see that there is no need to buy back the yen.

“The yen firmed a little after the BOJ announced it would widen the bond yield trading band, but the yen’s strength did not last long. Soon the yen will return to a downtrend. “

JOSEPH CAPURSO, CURRENCY ANALYST, AUSTRALIA JOINT BANK, SYDNEY

“In practice, there isn’t much in these political optimizations for the Japanese economy. So the interest rates haven’t really changed. The purchase of assets has not changed significantly. That is why you have only seen a small change in the JGB market and also in the Japanese yen.

“One thing the central bank has done is made some improvements to its various bank credit facilities. But these are just improvements, and I don’t think they will change the way the Japanese economy develops. “

TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE, TOKYO

“The BOJ has addressed the side effects of its existing policies in a number of ways, but I do not expect any particular response.”

“The bank can allow the band in which long-term rates move to widen a bit, or it could be run higher, or the zero rate target can be dropped. As part of its current policy, the BOJ has a long-term interest rate target and carries out interest curve control. So I think their next operation will focus on moving the yield curve up. “

MAYANK MISHRA, FX STRATEGIST, STANDARD CHARTERED BANK, SINGAPORE

“There isn’t much to take away and I think that explains the non-response. This is exactly how we expected the markets to react. An increase in the band limit by 5 basis points is hardly significant.

“There is a lot of policy improvement there, but none of it seems to matter. The BoJ has introduced a new fixed income operation on consecutive days, which again is irrelevant. “

BACKGROUND:

Japan’s economy grew 12.7% on an annualized basis from October through December due to robust exports, extending the recovery from the worst post-war recession triggered by the coronavirus pandemic. However, analysts expect the economy to contract in the current quarter as the cap to prevent the virus from spreading affects consumption.

As part of a policy known as yield curve control, the BOJ is aiming for short-term interest rates of -0.1% and a 10-year bond yield of around 0%. Risky assets such as exchange traded funds (ETFs) are also being bought as part of efforts to boost inflation.

In December, the BOJ announced it would conduct a review of its policy tools in March to make them more sustainable as the pandemic prolongs a struggle to meet its price target.

Data released on Friday showed that core consumer prices slowed for a second straight month in February as rising fuel costs offset some of the downward pressure from sluggish household spending from the coronavirus pandemic.

Reporting by Daniel Leussink and Hideyuki Sano in Tokyo, Sagarika Jaisinghani in Bengaluru; Arrangement by Sherry Jacob-Phillips

Original Source © Reuters

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