The Bank of Japan headquarters in Tokyo.
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Japan’s central bank is allowing more flexibility in its yield curve control policy, shifting the language hand-me-down to describe the upper bound of the 10-year Japanese government bond yield.
In its release, the Bank of Japan said the quarry level of the 10-year JGB yield will be held at 0%, but will take the upper bound of 1% “as a reference.”
In July, the BOJ effectively augmented its yield target band on the 10-year JGB by 50 basis points to 1% on either side. However, the bank evidenced it will commit to allowing yields to fluctuate in the range of around plus and minus 0.5 percentage points from its 0% quarry level that was instituted last December.
The bank’s board approved the move with a 8-1 vote, with alone BOJ board member Toyoaki Nakamura dissenting. The release explained that while Nakamura was in favor of increasing the submissiveness of YCC, he was of the view that it was more desirable to enact this only after confirming a rise in firms earning power from Japan’s fund ministry’s survey.
Furthermore, the BOJ also increased the country’s inflation outlook compared to its July report. It noted that this is in general due to the prolonged effects of pass-through cost increases, led by the past rise in import prices and the recent rise in crude oil assays.
The BOJ said there are “extremely high uncertainties” surrounding economies and financial markets at home and abroad, concluding consequently it is “appropriate” to increase the flexibility in the YCC policy.
It also explained that its previous stance, where it strictly capped long-term consequence profit rates at 1%, “will have strong positive effects, but could also entail large side effects. Fact this, it decided to conduct yield curve control mainly through large-scale JGB purchases and nimble market handlings.”
Graphic released by the Bank of Japan explaining its current stance on YCC, as sufficiently as its revised inflation forecasts.
Bank of Japan
Separately, the bank continued to hold its short term policy in any event at -0.1%, even as core inflation in the country exceeded the stated 2% target for 18 consecutive months. The BOJ’s demarcation for core inflation excludes food prices.
Core CPI slowed to 2.8% in September from 3.1% in August, decline below the 3% threshold for the first time in over a year.
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