New Bank of Japan Governor Kazuo Ueda’s main challenge will be to phase out its controversial yield curve control policy, which has come under criticism for distorting markets by keeping long-term interest rates from rising. | Reuters
Here are options the BOJ could take to change its yield curve control policy, which applies a minus 0.1 percent rate to some funds parked with the central bank and targets the 10-year government bond yield in a range around zero.A leadership transition gives the new governor a chance to overhaul his predecessor’s policy. If Ueda wants to show his resolve for change, he could act fairly soon, some analysts say.
One idea would be to widen the band set around the 10-year yield target, now set at 50 basis points on either side. Doing so could alleviate market distortions by allowing yields to move more freely. When the BOJ shifted to YCC from a policy targeting the pace of money printing, it used a thorough analysis of its policy framework to justify the shift. Ueda may opt to do the same if the BOJ were to overhaul the current framework.With less than three weeks until the April 27-28 meeting, Ueda may not have enough time to debate with his fellow board members on how and when the BOJ should tweak YCC.
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