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BoJ Defies Market Pressures, Maintains Yield Curve Control

The BOJ defied market pressure, leaving its yield curve control measures unchanged and sticking to the core pillars of its ultra-accommodative monetary policy, sending the yen plummeting and stocks higher.

Traders in Tokyo Bank of JapanThe decision, made after a two-day conference, was the second-to-last under the longest-serving governor, Haruhiko Kuroda, and gave his successor a 20-year long-term commitment to Japan. It is likely to put more pressure on the central bank to end its large-scale monetary easing experiment.

decision followed weeks of confusion In the Japanese government bond market where yields soared. To keep yields within its target range, the Bank of Japan spent last month buying government bonds worth about 6% of Japan’s gross domestic product.

The yield on the 10-year Japanese government bond dropped 0.15 points after the announcement, before falling 0.9 points back to 0.405%. Japan’s TOPIX stock index rose 1.7%.

Currency markets have avoided the turmoil that has dominated trading, but government bondthe yen fell more than 2% against the dollar after the Bank of Japan’s announcement.

Benjamin Shatil, currency strategist at JPMorgan in Tokyo, said the U.S. currency was difficult to interpret. CircleThe market assumes that the BOJ will eventually have to give in to pressure.

“In some ways, the decision not to change policy today or future guidance has set the BOJ into a long-term battle with the market,” Shatil said.

Bank of Japan A surprise decision in December Allowing the target yield cap on 10-year government bonds to rise (allowing the yield to be 0.5 percentage points above or below the zero target) would be a historic move by the last of the world’s major central banks. Increased chance of turning. super lax financial system.

But instead of scrapping its Yield Curve Control (YCC) policy, the central bank made no further changes on Wednesday and stuck to the range set last month.

The BOJ also said it would extend the period of its fund-supplying operations to financial institutions. This is a move aimed at stabilizing the yield curve for government bonds.

Kuroda to retire in April Record 10 years as Governor of the Bank of Japansaid last month that the YCC limit change was aimed at improving the functioning of the bond market and was not an “exit strategy.”

On Wednesday, Kuroda stressed that it will take more time for the recent YCC revisions to be implemented. “We are confident that the functioning of the market will improve in the future,” he said. “YCC is sustainable enough.”

Since its last policy meeting on Dec. 20, the BOJ has spent about 34 trillion yen ($265 billion) on bond purchases, with 10-year bond yields continuing above 0.5%. This has pushed the market to put pressure on central banks to abandon yield targets altogether.

“The Kuroda Bazooka is over. It’s up to the new governor to change things up and start from scratch,” said Mari Iwashita, chief market economist at Daiwa Securities. Before the policy meeting, Iwashita said that the YCC framework was in “a terminal state.”

Citigroup, which had expected the BOJ to abolish the YCC this week, said a decision was likely to be made at the new governor’s first meeting in April. Prime Minister Fumio Kishida plans to name Kuroda’s successor in the coming weeks.

Citigroup economist Kiichi Murashima said, “YCC’s problems are so obvious that there isn’t much need to discuss side effects under the new governor.

The BOJ on Wednesday also raised its inflation forecast for the fiscal year ending March, raising Japan’s core inflation rate, which does not include changes in fresh food prices, to 3% from the previous forecast of 2.9%. Also, for fiscal 2024, he expects inflation to be 1.8% instead of 1.6%.

Japan’s consumer price index rose 3.7% in November, the fastest pace in nearly 41 years, and the eighth straight month above the Bank of Japan’s 2% target.

Inflation in Japan is still moderate compared to the US and Europe, but the pace of inflation is picking up and investors are challenging Kuroda’s claims that the central bank is not planning to raise rates.

The Bank of Japan has also downgraded its economic growth forecast for the next two fiscal years, citing slowdowns in other economies.

https://www.ft.com/content/eb7fae97-18dd-4026-b4b7-35060a5b1f7b BoJ Defies Market Pressures, Maintains Yield Curve Control

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