The Bank of Japan is resisting market pressure and keeping a firm grip on the yield curve

The Bank of Japan is resisting market pressure and keeping a firm grip on the yield curve
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The Bank of Japan defied market pressure and left yield curve controls unchanged, sending the yen higher and pushing stocks higher as it clung to a key pillar of ultra-loose monetary policy.

Traders in Tokyo said the BoJ’s decision after a two-day meeting would put more pressure on his successor to end Japan’s two decades of experience under the longest-serving governor, Haruhiko Kuroda.

The decision is as follows week mess Yields rose on the Japanese government bond market. The central bank spent about 6 percent of Japan’s gross domestic product on bond purchases over the past month to try to keep yields within its target range.

Although the currency markets have escaped the turbulence that engulfed the trade JGBsThe yen fell more than 2 percent against the dollar after the BoJ announcement.

Benjamin Shatil, currency strategist at JPMorgan in Tokyo, said it was difficult to interpret the yen’s decline on Wednesday as a dip, as markets assumed that BoJ eventually he would have to give up the pressure.

“In some cases, the decision to make no changes today — neither to policy nor to forward guidance — sets the BoJ up for a protracted battle with the market,” Shatil said.

Japan’s Topix stock market index rose 1.6 percent in afternoon trade, while the yield on 10-year Japanese government bonds fell 0.12 percentage point to 0.381 percent.

of the BoJ unexpected decision in December Allowing a higher target yield ceiling on 10-year government bonds – allowing yields to fluctuate 0.5 percentage points above or below the zero target – raised the possibility of a historic reversal, with the world’s top central banks still on hold. extreme loose money mode.

But instead of scrapping the yield curve control (YCC) policy, the central bank on Wednesday made no other changes, sticking to the range set last month. He kept overnight interest rates at minus 0.1 percent.

Kuroda, who will step down in April after a record 10 years as BoJ governor, said changes to YCC limits last month were aimed at improving bond market performance and were not an “exit strategy”.

Since the last policy meeting on Dec. 20, the BoJ has spent about ¥34 trillion ($265 billion) in bond purchases, while the yield on the 10-year bond has continued to climb above 0.5 percent. This prompted markets to pressure the central bank to abandon its yield target altogether.

“The bazooka is over in Kuro, and now it’s really up to the new governor to turn things around and start from scratch,” said Mari Iwashita, chief market economist at Daiwa Securities. Before the political meeting, Iwashita said the YCC framework was in a “terminal state”.

“This pace of bond purchases is not sustainable,” Iwashita said before the policy meeting. “Obviously, we are seeing the limits of YCC in the face of increased productivity. Now he is in the last state.”

Japanese Prime Minister Fumio Kishida is set to name Kuroda’s successor within weeks.

The central bank on Wednesday also raised its inflation forecast for the fiscal year ending in March, forecasting Japan’s core inflation, which excludes volatile fresh food prices, to come in at 3 percent, up from 2.9 percent previously forecast. It also now expects inflation of 1.8 percent in fiscal 2024, up from 1.6 percent.

Japan’s consumer price index rose 3.7 percent in November, the fastest pace in nearly 41 years and above the BoJ’s 2 percent target for the eighth consecutive month.

Although inflation in Japan is still moderate compared to the United States and Europe, price increases have accelerated, prompting investors to challenge Kuroda’s assertion that the central bank has no plans to raise interest rates.

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