MNI BRIEF: BOJ Concerned By Market Functioning At Dec Meeting

Some Bank of Japan board members voiced concerns over the impact of declining bond market functioning on easy policy and economic activity, although many members saw the need to keep easy policy at the December 19-20 meeting, the Summary of Opinions released Wednesday showed.

"The functioning of bond markets has deteriorated, and if this situation persists, it could have a negative impact on financial conditions such as issuance conditions for corporate bonds and hamper the transmission of monetary easing effects,” one member said.

A different member said while stabilising long-term yields at low levels was necessary in order for Japan's economy to see sustainable growth, a "possible negative impact on market functioning is of concern." "It is therefore appropriate for the Bank to continue with yield curve control while expanding the range of 10-year Japanese government bond (JGB) yield fluctuations from the target level," the member said.

The BOJ lifted the band on its 10-year bond yield target to 50bp from 25bp after the December 19-20 meeting. (See MNI BOJ WATCH: Kuroda Dismisses Shock Shift As Tighter Policy)

Another member said “the expansion of the range of 10-year JGB yield fluctuations from the target level will contribute to enhancing the sustainability of yield curve control. Moreover, with a view to stabilizing the entire yield curve at a low level, increasing the purchase amount of JGBs for all maturities and, depending on the situation, making nimble additional purchases will lead to enhancing the sustainability of monetary easing.”

A different member said “the modification of the conduct of yield curve control will contribute to improving market functioning. It is important to humbly monitor where and how markets will settle and to what extent market functioning will improve.”