Bank of Japan Stands its Ground

June 17, 2022

The Bank of Japan Board met for 4 hours 35 minutes over two days and left its short-term interest rate and 10-year JGB yield targets unchanged at -0.10% and “around zero percent.” In the 8-1 vote, Board member Kataoka once again dissented, favoring more deeply negative rates and overall stimulus. Japan’s central bank launched its QQE with Yield Curve Control framework in September 2016. Officials reaffirmed their open-ended commitment to this stance:

The Bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner.

In light of recent pressure testing the 10-year Japanese Government Bond yield’s upside potential, officials in April had pledged to buy bonds in unlimited quantities to cap the yield at 0.25%. There had been some speculation that given monetary policy tightening around the world the BOJ might soften that commitment, but that did not happen.

While declaring that a rise of Japanese interest rates would be bad for the economy, Governor Kuroda also underscored that a pronounced drop of the yen would be unwelcome too. Analysts doubt that Kuroda could talk other central bankers into jointly intervening with the BOJ to support the yen and, without the cooperation of those other monetary authorities, doubt that BOJ unilateral yen purchases would do much to arrest the currency’s downward trajectory. Against the dollar, the yen has fallen to its weakest levels since the Asian debt crisis of 1998.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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