MNI INSIGHT: BOJ Sees Policy As Effective If JGB Yields Higher

Bank of Japan officials believe the policy framework reviewed in March will be effective even if upward pressure on Japanese government bond yields strengthens due to a change in market and economic conditions, MNI understands.

The BOJ is tolerant of a drop in JGB yields but its reviewed policy framework, which includes fixed-rate purchases for consecutive days, has highlighted its priority to keep the yield curve at low levels amid the coronavirus. The government is likely to issue additional JGBs as part of stimulus packages ahead of an expected move by Prime Minister Yoshihide Suga to dissolve the Lower House in September for a general election.

FED INFLUENCE

However, JGBs tend to be strongly influenced by U.S. Treasuries and yields will be kept in check by the view of the Federal Reserve and market players that the recent rise in consumer prices is temporary.

Bank officials do not see the BOJ's huge JGB holdings, referred to as the "stock-effect," as impacting its reputation in the market. But they want to create an environment that encourages market players to buy and sell JGBs based on the outlook for economy and prices and not based on BOJ operations.