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MNI (London)
Repeats Story Initially Transmitted at 05:05 GMT Sep 14/01:05 EST Sep 14
By Hiroshi Inoue
     TOKYO (MNI) - The Bank of Japan will lower 10-year yields rather than
short-term rates to cope with any temporary soft spots in the economy under the
new policy framework presented at the July 30/31 meeting, MNI understands.
     The BOJ can now, if needed, look to push the 10-year JGB yield to -0.2%, or
a shade lower, via the purchase of JGBs and up to Y6 trillion in ETFs. 
     But bank officials think that the BOJ cannot lower the 10-year yield to far
below -0.20% unless the board amends the policy of keeping the 10-year rate
'around zero percent'.
     The BOJ buys JGBs to stabilize the 10-year yield "around zero percent" but
allows some flexibility within the newly adopted -0.2% to +0.2% band.
     BOJ officials see no need to change July's policy framework now, with the
economy expanding moderately, as predicted at the July policy meeting, although
they are concerned about the impact of the U.S.-China trade dispute on global
trade and Japan's economy.
     If a worsening of the global economy and global demand materialized, it
would increase the volatility in global financial markets, BOJ officials warn,
hitting business sentiment and slowing capital investment, which in turn will
undermine the foundation for a moderate economic expansion.
     Although there is currently no need for the BOJ to change policy, a sharp
downward revision to the median growth and inflation forecasts, or if the
momentum toward the 2% price target weakened, there would be a need to change
the framework of monetary policy or conduct more easy policy.
     A stronger yen weighing on the economy is a main concern for the BOJ,
pressuring the BOJ to lower the short-term interest rate from its current
-0.10%. Negative rates, first introduced in January 2016, were effective in
curbing the yen's rise, but it was criticized by financial institutions, whose
profitability was hit.
     The BOJ introduced the yield curve control policy, currently targeting the
overnight interest rate at -0.1%, in September 2016 to help mitigate the
side-effects of its negative interest rate policy
     The BOJ doesn't rule out deepening the negative rate as a tool to
strengthen easy policy, but it remains unconvinced a further deepening is the
best solution.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
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