The Bank of Japan has slightly loosened the shackles on its 10-year yield target and said it will review the operation of its yield-curve control policy, surprising financial markets and sending the yen sharply higher.
the shackles on its 10-year yield target and said it will review the operation of its yield-curve control policy, surprising financial markets and sending the yen sharply higher.TAKESHI MINAMI, CHIEF ECONOMIST AT NORINCHUKIN RESEARCH INSTITUTE, TOKYO:
"The change in YCC range will help reduce the bond market from being artificially held up by central bank bond purchases, and improve secondary trading liquidity."NAOMI MUGURUMA, CHIEF FIXED INCOME STRATEGIST, MUFG, TOKYO: "But rather than suddenly abandoning negative interest rates or yield-curve control, it's more likely that the target maturity under the yield-curve control policy will be shortened, for example to seven years from 10 years currently.
"It could have been the last chance for the BOJ to move, amid incoming U.S. recession and the end of the Fed's rate hikes. If later, it would have caused a much bigger risk of sharp yen strengthening and other market fluctuations.""They have these two bazookas left - removing the YCC and bringing interest rates up, even possibly to positive territory. There are huge bazookas that would move the yen strongly.
"Further adjustments would require the view that inflation has become persistent and that YCC was perhaps no longer necessary, or that the negative impacts of YCC are outweighing the supportive ones as inflation rises. The market implications are most prevalent in the forex markets ... the hint that the BOJ is moving incrementally away from ultra-loose policy should be yen positive in the near term.""I think the move was certainly unexpected, to say the least.
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