MNI INSIGHT: New BOJ Policy Options ​​​​​​​​Need A Look

Bank of Japan officials are wary that any announced fresh analysis on the yield curve's impact on capital investment and the yen on an expected widening rate gap with the U.S. Fed may create market confusion on whether it is continuing, or ready to unwind, easy policy now built around a minus-plus 0.25% range for the 10-year bond, MNI understands.

BOJ officials are looking at whether accepting a higher 10-year yield in the face of a weaker yen and focusing yield-curve efforts on shorter-dated bonds, or broadly lowering the yield curve while leaving 10-year rates to the market could cause confusion as to whether the BOJ is unwinding easy policy, see: MNI INSIGHT: BOJ Ready To Defend Yield Curve On Any Fed Moves.

For now, bank officials said recent yen moves are moderate and justified, but if more rapid Fed hikes are ahead, it is prudent to consider policy options in response, along with an uptick in inflation that is catching attention, but still below the 2% sustained price target, see: MNI INSIGHT: BOJ Sees 2% Price Target Nearer With Wages Key.

But any announced new analysis of fine-tuning the 10-year range, or other tweaks, could also undermine the BOJ’s credibility, MNI understands.

In March 2021, the BOJ clarified the 10-year interest rate range showed “the degree to which monetary easing affects business fixed investment is more or less unchanged, except when the range of fluctuations in long-term interest rates over the preceding six months exceeds 50 basis points.”

Still, the topic is likely to come under discussion at the two-day BOJ board meeting that started on Monday where growth and inflation forecasts are expected to be lifted, see: MNI: STATE OF PLAY: BOJ Board To Lift Growth, Inflation Views.