MNI INTERVIEW: BOJ Must Be Accountable on JGB Range; Ex-Offc'l

The Bank of Japan can move to a wider trading band for the benchmark 10-year JGB either side of the target rate, but policymakers must be directly accountable for the level, a former BOJ executive director has told MNI.

Although the BOJ should have the flexibility for rates to fluctuate, how much leeway should be given in a band either side of zero must be a policy decision and not left to the discretion of officials in the markets operations department, Kenzo Yamamoto, now the representative for KYinitiative, said in an interview this week.

"It is necessary for the board to define the level of 10-year rate that it wants to guide," Yamamoto said.

In July 2018, the BOJ had unofficially widened a range of 10-year interest rate to range of plus or minus 20 basis points from a range of -0.1% to +0.1%. But the BOJ has been guiding the 10-year interest rate at around zero percent, considering economic and financial conditions.

Although not suggesting it was time to discuss exiting the current policy targeting the 10-year yield, Yamamoto said one eventual way out of the policy targeting longer-term yields was to eventually shift the target rate down the curve to the 5- and then 2-year JGB.

MUST CLARIFY ETF BUYS

Echoing recent comments from Kazuo Momma, a fellow former BOJ chief economist, Yamamoto said that the BOJ must be more transparent as to why it is buying exchange traded-funds (ETFs), as currently the policy is seen as underpinning stock prices.

"Even if the purpose of ETF buying is aimed at affecting risk premium, purchases should be neutral for markets as much as possible and the scale should be limited. The BOJ had bought ETFs when stock prices had fallen. Also, the bank bought ETFs when stock prices had fallen, even if they were still at an overall elevated level," Yamamoto said.

INFLATION TARGET

Yamamoto also said the BOJ needed to reassess its price target as it had not got close to achieving the 2% goal in nearly a decade of trying since QQE was introduced.

The Bank was continuing with its easy policy despite the lack of success that it had shown and it was unlikely the target would be hit through monetary policy alone, he said.