MNI BRIEF: BOJ's Dec Minutes Show Bond Mkt Distortion Concerns

Many Bank of Japan board members were worried about the deterioration in the functioning of bond markets and they saw the need to review the yield curve control policy at the December 19-20 policy-setting meeting, the minutes released Monday showed.

Based on the discussion, “the chairman requested that the staff explain what responses could be considered given the deterioration in market functioning that had been pointed out by the members,” the minutes showed.

The staff advised that the conduct of yield curve control could be altered such that while significantly increasing the amount of JGB purchases - the schedule of outright purchases would be increased from JPY7.3 trillion to about JPY 9 trillion - the BOJ would expand the range of 10-year JGB yield fluctuations from the target level from between around plus and minus 0.25 percentage points to between around plus and minus 0.5 percentage points. (See MNI BOJ WATCH: Kuroda Dismisses Market Speculation On YCC Hike)

“Some members pointed out that it was necessary for the BOJ to clearly explain that the expansion of the range of 10-year JGB yield fluctuations was a policy measure to make the current monetary easing more sustainable amid heightened global inflationary pressure, and that the expansion was not a policy change toward an exit from monetary easing,” the minutes showed.

“Members concurred that, if the deterioration in the functioning of bond markets persisted, this could have a negative impact on financial conditions such as issuance conditions for corporate bonds and hamper the transmission of monetary easing effects.”