Bank of Japan Monetary Policy Statement: Changes language around 1% 10year JGB cap

BOJ October 30 / 31 Monetary Policy Board meeting decision – no extension of the cap to 1.5% but instead formalised the 1% cap.

  • Keeps short-term interest rate target at -0.1%
  • Keeps 10-year JGB yield target around 0%
  • Widens reference range to 1.0% point up and down each around its
    10-year JGB yield target vs previous 0.5% point
  • Flexibly increase JGB buying, fixed-rate operations and collateral
    fund-supply operations
  • Changes language around 1.0% 10-year JGB yield cap
  • Decides to keep yield target but make 1% a reference cap
  • Will guide market operations nimbly
  • Will regard upper bound of 1% for 10-year JGB yield as reference in
    its market ops
  • Will determine offer rate for fixed-rate JGB buying ops each time,
    taking account market rates and other factors
  • Decides to make YCC more flexible
  • Japan’s inflation outlook overshooting but due largely to prolonged
    rises in import costs
  • Wages, prices must strengthen in virtuous cycle
  • BOJ will patiently continue monetary easing under YCC to support
    economic activity, create environment where wages rise more
  • Appropriate to make YCC more flexible given very high uncertainty
    over economy, markets
  • Strictly capping long-term rate with fixed-rate purchase operation at
    1% will have strong positive effects but could also entail large side
  • As such, boj decided to conduct YCC mainly through large-scale JGB
    buying and nimble market operations
  • BOJ makes no change to its forward guidance

Inflation forecasts boosted:

  • Board’s core CPI fiscal 2023 median forecast at +2.8% vs +2.5% in
  • Board’s core CPI fiscal 2024 median forecast at +2.8% vs +1.9% in
  • Board’s core CPI fiscal 2025 median forecast at +1.7% vs +1.6% in
  • Board’s real GDP fiscal 2023 median forecast at +2.0% vs +1.3% in
  • Board’s real GDP fiscal 2024 median forecast at +1.0% vs +1.2% in
  • Board’s real GDP fiscal 2025 median forecast at +1.0% vs +1.0% in

BOJ quarterly report:

  • Japan’s economy likely to continue recovering moderately
  • Inflation likely to slow, then re-accelerate as wages rise, inflation
    expectations heighten
  • Uncertainty over Japan’s economic, price outlook very high
  • Must be vigilant to financial, fx market moves and their impact on
    Japan’s economy, prices

BOJ quarterly report on risks:

  • Uncertainty over Japan’s economy, prices is extremely high
  • Need to closely watch financial, currency market moves, their impact
    on Japan’s economy, prices
  • Risks to price outlook skewed to upside in fy2023
  • Must closely watch whether favourable cycle of wage growth, prices
    will strengthen
  • Risks to economic outlook generally balanced in fy2023 and fy2024,
    but skewed to downside for fy2025
  • There is possibility wage growth may not strengthen as expected next
    year onward, causing prices to deviate downward

Summary bullets are via Reuters.

The main news is that the 1% 10-year JGB yield cap has been formalised. The Nikkei reported on Monday US time that Bank was considering a 1.5% cap, but that has not panned out.

Stay tuned for Bank of Japan Governor Ueda’s news conference at 0630 GMT.

This article was written by Eamonn Sheridan at Source