BoJ may scrap yield curve control ‘this month’

Momma said any change to the YCC has to come without prior warning, a stance that was also indicated last week by Shinichi Uchida, the BoJ’s key policy architect. — Bloomberg

TOKYO: A recent drop in global bond yields has created favourable conditions for the Bank of Japan (BoJ) to scrap its yield curve control (YCC) programme this month, according to a former BoJ executive director in charge of monetary policy.

“There’s a possibility in April if you consider the current circumstances objectively,” former director Kazuo Momma said in an interview on Tuesday.

“Long-term yields won’t rise abruptly even if the YCC is scrapped” as long as the market environment continues to have little momentum for higher yields.

The remarks suggest new BoJ governor Kazuo Ueda’s first policy meeting could result in surprise changes as he inherits a decade’s worth of massive monetary easing orchestrated by outgoing chief Haruhiko Kuroda.

Momma said any change to the YCC has to come without prior warning, a stance that was also indicated last week by Shinichi Uchida, the BoJ’s key policy architect.

Momma didn’t rule out the possibility that the BoJ will decide to leave the yield curve control programme unchanged at its April 27 and 28 gathering.

Some economists have said that Ueda, who is assuming the governorship Sunday, is unlikely to make a policy shift this month after global financial markets came under strain due to the banking crisis in the United States and Europe.

Japan’s 10-year bond yields plunged after the BoJ’s March policy meeting, which came around the same time as news of trouble at Silicon Valley Bank. The yield was at around 0.46% yesterday, below the BoJ’s ceiling of 0.5%.

June was the most popular time among economists for expecting a tightening step from the BoJ, according to a Bloomberg survey last month.

The poll was conducted shortly after Ueda indicated, at his first parliamentary hearings, that he was in no rush to change monetary stimulus policy.

Some 41% of 49 economists expected the change in June, followed by 20% in April.

Any change to the YCC will aim to reduce the side effects of monetary easing and will not be a step towards policy normalisation, Momma said. Therefore, it won’t be at odds with Ueda’s recent remarks that monetary easing must be continued.

The YCC adjustments could come with a shift in forward guidance to signal that the bank won’t raise rates until it’s certain it will achieve its 2% price target, Momma said.

The bank is also likely to pledge to continue its large-scale bond buying to avoid a sudden surge in yields.

“I don’t expect a change in the policy rate of minus 0.1% at all for the next 18 months,” Momma said. “The BoJ won’t know if the 2% inflation target will be met until around summer 2024.”

BoJ watchers will also be closely scrutinising the central bank’s new quarterly economic projection that will be released after the April policy meeting.

Momma, who previously saw no chance of Japan meeting its 2% target, said the odds of achieving it have risen to 20% as businesses continue to pass higher costs onto consumers.

The bank is likely to upgrade its price forecast above 2% for the year starting this month while keeping its predictions below that level in the two following years, said Momma. — Bloomberg

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BoJ , yieldcurve , Ueda , bonds , policyrate


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