TOKYO : Japan's decades of ultra-low interest rates may reach a turning point on Wednesday, as the central bank debates the fate of its yield control policy, which is creaking under pressure as markets repeatedly break a limit set less than a month ago.Any change to the Bank of Japan (BOJ) policy is likel
TOKYO : Japan's decades of ultra-low interest rates may reach a turning point on Wednesday, as the central bank debates the fate of its yield control policy, which is creaking under pressure as markets repeatedly break a limit set less than a month ago.
While other central banks have aggressively raised interest rates to resist rising prices, the BOJ has kept long-term rates around zero, seeking stronger consumption and wage growth to accompany Japan's unaccustomed inflation of the past year. Under pressure from rising yields, the central bank last month shocked markets by doubling the tolerance to plus or minus 0.5 per centage point from the target, aiming to extend the life of YCC. The cap for the 10-year bond therefore became 0.5 per cent.
"The liquidity drain caused by the BOJ's bond buying is reaching abnormal levels," said Chotaro Morita, chief bond strategist at SMBC Nikko Securities."From the perspective of investors and securities firms, there's a growing feeling the BOJ could give up maintaining its current policy scheme." The BOJ is in a bind. Further cosmetic tweaks could simply ignite market expectations of a near-term rise in interest rates. But raising or removing the yield targets would run counter to the central bank's narrative that it cannot overhaul or phase out YCC before stronger wage growth accompanies rising inflation, which has so far been driven mainly by import costs.
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