Bank of Japan vows limitless defence of yield target
2022.04.28 08:17
FILE PHOTO: A man wearing a protective mask walks past the headquarters of Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020.REUTERS/Kim Kyung-Hoon
SINGAPORE (Reuters) – The Bank of Japan on Thursday maintained its massive stimulus programme and a pledge to keep interest rates low, reinforcing its resolve to support a fragile economy.
The central bank also said it will offer to buy unlimited amount of 10-year government bonds to defend an implicit 0.25% yield cap around its zero target every market day.
That is a stark contrast with tightening almost everywhere else and the decision drove the yen to a two-decade low on the U.S. dollar, while Japanese government bonds rallied.
Here are some analysts’ views on the move and market reaction:
BART WAKABAYASHI, CO-BRANCH MANAGER, STATE STREET, TOKYO
“The key announcement is the commitment to conducting fixed-rate operations every day. I think they are trying to make the point here that we’re ready to act at any second.
“They’ve quadrupled down on their commitment to this.
“The BOJ is not promoting a weak yen, but their policy is in a way supporting a weak yen…I think most people would have agreed 130 is in play, but now it’s a foregone conclusion. I would bet that London will come in and smack (dollar/yen) higher.”
RAY ATTRILL, HEAD OF FX STRATEGY, NATIONAL AUSTRALIA BANK, SYDNEY
“Effectively the Bank of Japan has doubled down on its yield-curve control target by its offer to buy bonds at 0.25% every day. There no longer needs to be a will-they, won’t-they.”
TOM LEARMOUTH, JAPAN ECONOMIST, CAPITAL ECONOMICS
“(The decision) is unlikely to solve the BoJ’s dilemma.”
“As it comes under further pressure from continued rises in global bond yields, we think the bank will eventually give itself some breathing space by widening the band from ±0.25% to ±0.50%. That could happen at the next meeting on 17th June.
“That said, the full abandonment of yield curve control is a remote prospect.”
TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE, TOKYO
“If the BOJ delivers the kind of policy it’s doing, pressures leading to depreciation of the yen will rise. The Federal Reserve in the United States may raise interest rates by 50 basis points next week, while the BOJ will defend the 0.25% yield level on 10-year (Japanese) government bonds.
“There’s no sign at all that prices are stably going to rise by 2% so everyone is wondering whether it’s really good to keep going as it is. Markets could attack (the BOJ’s unlimited bond buying).”
MASAHIRO ICHIKAWA, CHIEF MARKET STRATEGIST, SUMITOMO MITSUI DS ASSET MANAGEMENT, TOKYO
“As the BOJ maintained its current easy policies, the market understood it as a signal that the BOJ would not care about a weak yen. With the Fed’s upcoming rate hike next week that will further widen the interest rate gap between the U.S. and Japan.
“BOJ Governor Kuroda will likely repeat his previous views” at press conference later in the day, “with no surprise expected, which makes a yen shortening position more reasonable.”
HIROAKI MUTO, ECONOMIST, SUMITOMO LIFE INSURANCE CO, TOKYO
“The BOJ showed that it will fight (the rising JGB yields) by maintaining the current policy with zero concession.
“The BOJ will not surrender and keep fighting to defend its yield curve control.”
SHOTARO KUGO, ECONOMIST, DAIWA INSTITUTE OF RESEARCH, TOKYO
“The BOJ’s announcement to buy bonds at 0.25% (every business day) entails a strong announcement effect no matter if it really buys or not.
“It implied the BOJ would not allow any speculation for policy revision to emerge at future meetings.”
KIYONG SEONG, LEAD ASIA MACRO STRATEGIST, SOCIETE GENERALE, HONG KONG
“It confirms the BOJ’s dovishness and that has been detrimental to the Japanese yen, which is suddenly falling and dragging on most of the north Asian currencies.
“Even though the market already anticipated the BOJ would remain accommodative, finding out again has led to an exaggerated market move again.”
SEAN CALLOW, SENIOR CURRENCY STRATEGIST, WESTPAC, SYDNEY
“After weeks of confusing comments about the yen from government officials, the BOJ has cut through with a clear message – the global inflation surge is ex-Japan, so zero rates will remain.
“Dollar/yen may be a round number but it cannot be a red line, with attention likely to turn quickly to 135, the 2002 high. The yen is not being ignored, but it is mostly a side effect for the BOJ.”
HIDEO KUMANO, CHIEF ECONOMIST, DAI-ICHI LIFE RESEARCH INSTITUTE, TOKYO
“The dollar-yen reacted very sharply. Investors may test the pair to break above 130 yen.
“I wonder why the BOJ had to clarify its stance on fixed-rate operations today, which likely triggered the yen sell-off. Investors must be closely watching what Kuroda may explain about it and his previous stance that weak yen is good for economy.
“What makes me worry is the prospect of the Fed’s move towards quantitative tightening at its meeting next week during Japan’s Golden Week holidays. That could trigger even sharper yen falls amid a thin trade.”
