BOJ Nakaso: To Change Yield Curve Shape For 2% Goal As Needed

     TOKYO (MNI) - Hiroshi Nakaso, deputy governor of the Bank of Japan, said

Wednesday that the bank stands ready to adjust the shape of the Japanese

government bond (JGB) yield curve as necessary to achieve its 2% inflation

target.

     "Yield curve control is designed to be flexible and highly sustainable,

through which the most appropriate level of interest rates can be achieved in

line with developments in economic activity and prices as well as financial

conditions," Nakaso said in a speech at the Central Banking Seminar, hosted by

the Federal Reserve Bank of New York. 

     However, Nakaso didn't elaborate on how and when the BOJ might adjust the

shape of the yield curve under its yield curve control policy introduced in

September 2016.

     "The BOJ needs to establish a new benchmark that can be applied to the

entire yield curve, not to a single short-term interest rate alone," he said.

     "As part of devising such benchmarks, it has been proceeding with

theoretical and empirical analysis from many aspects," Nakaso added. "These

efforts include measuring the natural yield curve, which can be obtained from

expanding the concept of the natural rate of interest and comparing it with that

during the past easing phase."

     Nakaso also said, "The current monetary policy aims to facilitate the

formation of a yield curve that is deemed most appropriate for maintaining the

momentum toward achieving the price stability target of 2%."

     "The most appropriate shape of the yield curve cannot be formed by fixing

the amount of JGB purchases as an operating target," he added.

     As for the 2% inflation target, Nakaso said, "the BOJ aims to drastically

convert the deflationary mindset entrenched among people and re-anchor inflation

expectations at 2%, but this has met with difficulties."

     "Compared to the United States and Europe," he  noted, "inflation

expectation formation in Japan is judged as being largely adaptive, meaning that

the expectations are formed in accordance with developments in the observed

inflation rate."

     The BOJ needs to achieve the most appropriate interest rate level with a

view to containing side-effects of its easy policy, Nakaso said. 

     Under the current policy framework, the BOJ seeks to maintain the overnight

interest rate at -0.1% and the 10-year bond yield at around zero percent.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: rich.dirks@marketnews.com

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