MNI POLICY: Higher Fed Inflation View A Mkt Risk, BOJ Worry

Any upward revision in the Federal Reserve's inflation outlook is a risk for global financial markets as it will likely accelerate the move higher in U.S. Treasury yields and push stock markets lower, Bank of Japan officials think, MNI understands.

Further rises in US longer-end yields will also heighten the risk that outflows will be triggered from emerging and developing countries, increasing their debt burden, the officials note.

At present, Fed officials see inflation edging above 2% this year, but don't see further spikes or the rise being sustainable, allowing policymakers to maintain their easy policy without concern over inflation.

If the Fed becomes more concern over a sustainable rise in inflation rate, pushing U.S bond yields higher, although it could see the spread over Japanese bonds widen further, which could further weaken the yen.

MARKET WOBBLES

Other than a few short-lived wobbles, neither U.S. or global stock markets were greatly unnerved by the rise in yields, placated by the fact the Fed was sanguine about inflation and higher yields, the BOJ officials believe.

The U.S. and global stock prices were little influenced by the recent rise in long-term interest rate as market players like Fed officials aren't worried about the near-term spike in inflation rate, the BOJ views.

But Fed reactions to developments, along with how Covid-19 and the vaccine roll-out play domestically, will continue to be the key focus for the BOJ into Q2 and H2 beyond.