MNI BRIEF: BOJ's Bond Functioning Fears Won Over Reflationists

Bank of Japan Deputy Governor Masazumi Wakatabe and board member Asahi Noguchi, both prominent "reflationists", agreed to support Tuesday's lifting of the upper band on the 10-year yield target only after monetary staff pledged to directly link the change to concerns about bond market functioning, MNI understands.

Wakatabe and Noguchi had asserted that it was premature to raise interest rates given the fragile economy and because the 2% price target was not in sight.

BOJ staff satisfied the reflationists and delivered a unanimous vote by presenting the widening of the 10-year band as separate from developments in the economy and inflation rate, stressing that it was a one time action to address distorted functioning in bond markets.

The BOJ was concerned that any link to the economy and inflation would trigger market participants to speculate further policy action may follow whenever the BOJ changes its assessment on growth and prices.