VIEW: J.P.Morgan: BoJ Sticks To Existing YCC Framework

J.P.Morgan expect the BoJ to “stick to maintaining the current YCC framework in the current situation. Indeed, in 2018 the BoJ purchased as much as 1,640bn JPY of 5- to 10-Year JGBs using fixed-rate operations in one day which caused a market squeeze and maintained the 10-Year yield within the band. The background of why the BoJ sticks to preventing the 10-Year yield from exceeding the upper band is that, in addition to the basic fact that the Market Operations Division follows the guidelines for money market operations decided on at the monetary policy meeting (MPM), the BoJ seems not to be seriously concerned about the negative impact of yen depreciation on inflation at the current level, in our view. Even if the government and the BoJ think a countermeasure is needed against further depreciation of the yen, we expect they will think of such measures outside of the monetary policy. That said, if a sharp rise in the U.S. interest rates induced significant depreciation of the yen and this provoked strong political pressure, this may not apply.”