Bank of Japan Implements More Flexibility in Yield Curve Control Policy
The Bank of Japan (BOJ) has announced a shift in its yield curve control (YCC) policy, allowing for increased flexibility. The central bank stated that while the target level for the 10-year Japanese government bond (JGB) yield will remain at 0%, it will now consider the upper bound of 1% as a reference point.
This move comes after the BOJ effectively widened its yield target band on the 10-year JGB in July. The bank had expanded the range by 50 basis points to 1% on either side. However, it also indicated its commitment to allowing yields to fluctuate within plus and minus 0.5 percentage points from its 0% target level, which was implemented in December last year.
With an 8-1 vote, the bank’s board approved this change, with only BOJ board member Toyoaki Nakamura dissenting. Nakamura expressed support for increased flexibility in YCC but believed that it would be more prudent to implement this move after confirming an increase in firms’ earning power through Japan’s finance ministry’s survey.
Additionally, the BOJ revised the country’s inflation outlook compared to its July report. The bank pointed to the prolonged effects of cost increases, particularly driven by past import price rises and recent crude oil price increases, as the main reason behind the adjustment.
Acknowledging the significant uncertainties surrounding both domestic and international economies and financial markets, the BOJ deemed it appropriate to enhance flexibility in the YCC policy. The bank also explained its decision to conduct yield curve control primarily through large-scale JGB purchases and nimble market operations in order to mitigate potential side effects associated with strictly capping long-term interest rates at 1%.
Furthermore, the BOJ opted to maintain its short-term policy rate at -0.1%, despite core inflation in the country surpassing the 2% target for 18 consecutive months. However, it is important to note that the BOJ’s definition of core inflation excludes food prices.
In other news, core CPI slowed to 2.8% in September from 3.1% in August, falling below the 3% threshold for the first time in over a year.
Please stay tuned for more updates on this breaking news story.
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