Bank of Japan
October 31, 2023
The aforementioned Bank of Japan Board meeting ended with an announcement of no change in the -0.1% overnight interest rate target and an unchanged desire to keep the ten-year Japanese Government Bond yield around zero percent. As rumored, however, there was a significant tweak in how the JGB goal is viewed and maintained. There’s no longer to be a target ceiling enforced in a strict and automatic way:
The Bank considers that strictly capping long-term interest rates by fixed-rate purchase operations at 1.0 percent for consecutive days, which it has offered every business day in principle, will have strong positive effects, but could also entail large side effects. Given this, it decided to conduct yield curve control mainly through large-scale JGB purchases and nimble market operations.
To blunt an excessive market reaction to the removal of a known cap on long-term interest rates, other language in the BOJ press release retained a dovish tone, such as “the Bank will patiently continue with monetary easing.” A published quarterly Outlook for Economic Activity and Prices revised projected core inflation upward. Excluding fresh food, consumer prices are projected to rise 2.8% in both fiscal 2023 and fiscal 2024 but then fall below target to 1.7%. Only when also excluding both perishable food and energy is inflation close to the 2% target in both fiscal 2024 and FY 2025.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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