Twitter trying to find out why the Bank of Japan changing a number ruined the world economy.
The Bank of Japan has slightly loosened the shackles on its 10-year yield target and said it will review the operation of its yield-curve control policy, surprising financial markets and sending the yen sharply higher.
“The BOJ will keep on monitoring markets when making further moves as needed. But it is unlikely to shift policy automatically just because Governor Haruhiko Kuroda is replaced with someone else in April.”
ATUSHI TAKEDA, CHIEF ECONOMIST, ITOCHU ECONOMIC RESEARCH, TOKYO:
“Today’s move reflects the BOJ’s determination not to alter its yield curve control policy. But the BOJ failed to communicate with markets, as it made no efforts to lay the ground or allow markets to factor in such a move. It came all of sudden so market players must be angry about the decision.
“This signals the beginning of the slow unwind of ultra-low interest rates in Japan.
“The change in YCC range will help reduce the bond market from being artificially held up by central bank bond purchases, and improve secondary trading liquidity.”
“As investors further assess the implications…the market may stay volatile for the coming weeks.”
NAOMI MUGURUMA, CHIEF FIXED INCOME STRATEGIST, MUFG, TOKYO:
“It was a surprise to most market participants including ourselves. There is a risk that yen might appreciate further because (it is) just before holidays in overseas markets, so there could be further unwinding in yen short position.”
“This is one of the earliest steps that the BOJ has decided to take, but I don’t think (it) will declare the end of YCC or negative interest rate policy anytime soon.”
HIROSHI NAMIOKA, CHIEF STRATEGIST AND FUND MANAGER, T&D ASSET MANAGEMENT, TOKYO:
“It was a surprise decision at a time when the market had expected a lame-duck situation near the end of Governor Kuroda’s term…it was a nice move, including the fact that it came against the economists’ expectations. The current policy framework would have mandated an endless bond-buying if everyone expects (a shift). Kudos to the BOJ for the surprise.
“It could have been the last chance for the BOJ to move, amid incoming U.S. recession and the end of the Fed’s rate hikes. If later, it would have caused a much bigger risk of sharp yen strengthening and other market fluctuations.”
BART WAKABAYASHI, BRANCH MANAGER, STATE STREET, TOKYO:
“They have these two bazookas left – removing the YCC and bringing interest rates up, even possibly to positive territory. There are huge bazookas that would move the yen strongly.
“Maybe this is a baby step to test out the strategy and see what the market reaction is, and how much it’s reacting.
“I think we’re seeing the first toe in the water.”
KERRY CRAIG, GLOBAL STRATEGIST, JP MORGAN ASSET MANAGEMENT, MELBOURNE:
“The move came earlier than I had expected, but is a step towards the normalisation process of policy in Japan. However, it is only a first step and yield-curve control (YCC) remains in place, as does negative rate strategy.
The BOJ said the yield on the 10-year Japanese government bond could rise as high as 0.5% from a previous cap of 0.25%. The central bank has set a target range around zero for the benchmark government bond yield since 2016 and used that as a tool to keep overall market interest rates low.
The Nikkei Stock Average, which had been slightly higher in the morning, was down more than 2% as investors digested the possibility that companies would have to pay higher interest on their debt. Also, the weak yen has pushed up profits for many exporters, so a stronger yen could be negative for stocks.
Gov. Haruhiko Kuroda, who is nearing the end of 10 years in office, is known for making moves that surprise the market, although he had made fewer of them in recent years.
Market players had anticipated that time might be running out on the Bank of Japan’s low-rate policy, but they generally didn’t expect Mr. Kuroda to move at the year’s final policy meeting.
The Bank of Japan’s statement on its decision Tuesday didn’t mention inflation as a reason to let the yield on government bonds rise as high as 0.5%. Instead, it cited the deteriorating functioning of the government bond market and discrepancies between the 10-year government bond yield and the yield on bonds with other maturities.
The bank laid out a plan for the first quarter of 2023 that calls for purchasing around ¥9 trillion in Japanese government bonds each month, equivalent to $68 billion, up from ¥7.3 trillion a month previously. The move gives the bank extra firepower to tamp down the bond yield if market pressure is pushing it higher.
The bank said Tuesday’s moves would “facilitate the transmission of monetary-easing effects,” suggesting it didn’t want the decision to be interpreted as monetary tightening.
The BOJ has made “a small step toward an exit” from monetary easing, said Mitsubishi UFJ Morgan Stanley Securities strategist Naomi Muguruma.
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