Bank of Japan monetary policy decision and statement – says will manage YCC more flexibly but maintains 0.5% band.
- Maintains short-term interest rate target at -0.1%
- Maintains 10-year
JGB yield target around 0% - Maintains band
around 10-year JGB yield target at up and down 0.5% each
Raised their inflation forecasts for this year, but not the next:
- Core-core CPI fiscal 2023 median forecast at +3.2% vs +2.5% in April
- Core-core CPI fiscal
2024 median forecast at +1.7% vs +1.7% in April - Core-core CPI fiscal
2025 median forecast at +1.8 % vs +1.8% in April
More:
- Will guide yield curve control more flexibly
- Appropriate to
heighten sustainability of monetary easing - Will operate yield
curve control more flexibly to respond nimbly to upside, downside
risks - Will keep offering
fixed-rate operations for 10-year jgb yield at 1.0% - In order to
encourage formation of yield curve that is consistent guideline, BOJ
will continue with large-scale jgb buying and make nimble responses
for each maturity - For example, by
increasing amount of JGB buying and conducting fixed-rate purchase
ops and funds-supplying ops against pooled collateral - There are extremely
high uncertainties for Japan’s economy, prices - Must pay attention
to financial, fx markets and their impact on Japan’s economy, prices - Japan’s consumer
inflation higher than projected in April outlook report
More:
-
Wage growth has risen, signs of change have been seen in firms’ wage,
price-setting behaviour - Inflation
expectations have shown some upward movements again - If upward movement
in prices continue, effects of monetary easing will strengthen
through decline in real interest rates - Strictly capping
long-term yields could affect bond market functioning, volatility in
other markets - Such effects are
expected to be mitigated by conducting yield curve control with
greater flexibility - If downside risks to
economy materialise, effects of monetary easing will be maintained
through decline in long-term yields under yield curve control
framework
BOJ quarterly report:
- Risk to inflation
skewed to upside for fiscal 2023, 2024 - Japan’s economy is
recovering moderately - Inflation
expectations showing signs of heightening again - Japan’s economy
likely to continue recovering moderately - Japan’s economy to
continue expanding above potential - Japan’s consumer
inflation likely to slow pace of increase, then re-accelerate as
inflation expectations, wages rise
—
Bolding above is mine. The Bank has given a very minor YCC concession, saying they’ll manage it more flexibly. I don’t know what that means, but on face value it’s a nod to those calling for a wider band. Perhaps we’ll see that in the weeks ahead but I am only guessing without more detail from the Bank. The Bank made a point of saying the 0.5% either-way band is still in place but left themselves some flexibility to widen it on a day to day basis to 1%. The Bank could do with some communication lessons. it appears the +/-0.5% is still in place, but there is a ‘maybe’ to take it to +/-1%. Sheesh.
There was a dissenter. BOJ makes decision on YCC by 8-1 vote:
- Board member
Nakamura dissents to decision on YCC - Nakamura dissents to
decision on YCC, considering it was desirable to allow greater
flexibility after confirming rise in firms’ earnings power from
sources such as financial statements statistics - Nakamura dissents to
decision on YCC but in favour of idea of conducting YCC with greater
flexibility
Nakamura in favour of getting on with a move towards more flexibility for yields. It appears he was arguing for a firm move to +/- 1%, not this wishy-washy ‘maybe 1%’ if wiggle room is needed. The longer the Bank of Japan sticks to +/-0.5% the more painful it’ll be for them when they do capitulate. And they will.
Bank of Japan Governor Ueda holding back the wave of calls for a tweak. Ueda’s press conference is next, coming at 0630 GMT, 0230 US Eastern time.