MNI BRIEF: BOJ Sees Mkts Acknowledging Bank’s Easing Ability

Bank of Japan officials believe market players acknowledge the bank's ability to lower the short-term policy interest rate from -0.1% if needed and its readiness to curb a sharp move in long-term yields, even if those players are sceptical the central bank will ever face a situation requiring the exercise of those tools, particularly for a test of the JGB range, MNI understands.

The same officials also thinks forex traders understand it will face increased pressure to consider lowering the short-term policy rate if there is any sharp rise in the yen if the U.S. recovery stutters and further Fed easing looks possible.

Although looking unlikely now, any unexpected rise in Japan's inflation rate will send long-term interest rates sharply higher, in the officials' view. However, JGB yields will continue to be influenced by U.S. Treasury bond yields for the time being.