BOJ’s Ueda says targeting shorter-duration bond yield among future options By Reuters

by The Insights

© Reuters. Bank of Japan (BOJ) Governor Kazuo Ueda attends a news conference after their policy meeting at the BOJ headquarters in Tokyo, Japan April 28, 2023. REUTERS/Issei Kato

By Leika Kihara

TOKYO (Reuters) – Bank of Japan Governor Kazuo Ueda said the shift in the central bank’s policy target in favor of the five-year bond yield, from the current 10-year zone , would be among the options if it were to change its yield curve control (YCC) policy in the future.

With falling commodity costs likely to dampen inflation in coming months, the BoJ must avoid prematurely tightening monetary policy to ensure Japan sustainably hits its 2% target, Ueda said in a briefing. group interview with the media on Thursday.

But he said the BOJ could make changes to YCC “if the balance between policy benefits and costs changes.”

“If the BOJ were to change YCC in the future, there are different ways to do it,” he said, adding that shortening the duration of the bond yields it targets to the five-year zone relative to the current 10-year-old area “could be among the options.”

“But I won’t comment on whether we definitely would, how likely it is to happen or under what conditions the BOJ would consider this option desirable,” Ueda said.

The remarks focus slightly more on the possibility of policy adjustment than those in Ueda’s speech last week, where he underscored the BOJ’s determination to remain an outlier amid a global wave of central banks. raising rates to fight inflation.

In a review of the YCC in 2021, the BOJ said short- and medium-term interest rates had the biggest impact on economic activity. He also warned that excessive declines in super long yields were undesirable as it could hurt pension yields and household confidence.

This has led some analysts to bet that the BOJ could shorten the duration of the bonds it targets and allow longer-term interest rates to rise more freely, reflecting economic fundamentals.

Ueda said the BOJ could keep five-year borrowing costs flat and low even while maintaining its 10-year yield target, as long as the shape of the yield curve was a normal upward slope.

“That means that just because five-year maturity has a big effect (on the economy) doesn’t necessarily mean aiming for the 10-year yield isn’t necessarily bad,” he added.


Markets are rife with speculation that Ueda, who took the helm in April, will phase out his predecessor’s controversial policy that combines a negative short-term interest rate target with a 0.5% cap for the yield on 10-year government bonds.

Core consumer inflation in Japan has remained above the BOJ’s 2% target for more than a year, casting doubt on its view that recent cost-related price hikes will be temporary. .

Ueda said he expects consumer inflation to slow as global fuel and commodity prices have started to decline.

“But we can’t completely rule out the possibility that this projection could turn out to be wrong,” Ueda said. “If this is the case and if we see the need to revise our forecast, we would like to act quickly,” he said.

The BOJ kept monetary metrics unchanged last month but announced a plan to conduct a review of its past monetary policy moves, laying the groundwork for phasing out the massive stimulus measures rolled out by former chief Haruhiko. Kuroda.

As part of the review, the BOJ will conduct various investigations and hearings, including in parts of Japan, as well as workshops inviting scholars and experts, Ueda said.

He said the BOJ should stick to its 2% inflation target, brushing aside calls from some academics to dilute the price target to hasten an exit from the ultra-loose policy.

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