MNI INSIGHT: BOJ Sees No Need For Shorter Rate Target Duration

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan sees no need to shorten the maturity

targeted for its yield control policy nor the need to adopt an inflation range

instead of the current 2% goal, despite calls from the International Monetary

Fund to do so, MNI understands.

     However, the BOJ shares the IMF's view that current policy has potential

side-effects and they must be watched closely.

     "The BOJ could consider shifting its JGB target from the 10-year note to

shorter maturity bonds so as to mitigate the impact of prolonged easy policy on

profits at financial institutions," the IMF said in its 2019 Article IV

consultation for Japan.

     The IMF called on the BOJ to introduce an inflation target range, instead

of the current 2% price target, enabling it to increase the flexibility of

monetary policy.

     --CONCERNS SHARED

     BOJ officials share what they believe is the IMF concern over prolonged

easy policy and accumulated financial imbalances, but see no immediate need to

change the framework to sustain current monetary policy.

     The Bank sees a risk that if it shortens the long-term policy target to a

shorter one, such as the 5-year rate, it would be interpreted as an unwinding of

the easy policy. Officials at the BOJ also see no guarantee of a steepening of

the yield curve if they move their target further down the curve.

     --TARGET RANGE

     Neither is there an appetite at the BOJ for an inflation target range, as

it sees a risk that if say a range of 1% to 3% was introduced, it would be

interpreted as the central bank abandoning the 2% target and tolerating

inflation at 1%.

     That the BOJ worries, could put upward pressure on the yen.

     Although the Bank currently targets 2%, the core-core rate excluding both

fresh food and energy seen as a benchmark by officials rose only 0.7% in

October, with little upward price pressure as national wage growth remains

sluggish.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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