BOJ to Block Unwanted Yen Spikes by Tolerating Temporary Market-Driven Declines in Interest Rates

The Bank of Japan may seek to block unwanted yen rises by tolerating temporary, market-driven declines in long-term interest rates, Sayuri Shirai former BOJ board member mentioned on Friday.

Japanese government bond (JGB) yields knocked three-year lows on Friday on considerations about the U.S.-China trade struggle, even because the BOJ cut its buy of lengthy-dated bonds to prevent 10-year yields from straying too much from its 0% target.

Cutting the BOJ’s price targets or extending the band during which 10-year yields are allowed to move could be too contentious, as doing so might drive returns more profound into negative territory and pressure financial institutions’ profits, Shirai stated.

As an alternative, the BOJ may tolerate temporary, market-driven declines in 10-year bond yields, to prevent narrowing U.S.-Japan rate of interest differentials from pushing up the yen, she said.

Under a coverage dubbed yield curve control (YCC), the BOJ guides short-term rates at -0.1% and 10-year yields around 0% via aggressive bond purchases.

To breath some life into the market, Governor Haruhiko Kuroda has mentioned the BOJ would allow 10-year yields JP10YTN=JBTC to move in a variety of 40 basis factors around the 0% target.

If yen rises become too sharp, the BOJ may be forced to widen the vary at which it permits yields to move, stated Shirai, who retains shut contact with central bank policymakers.

Global bond yields have fallen on concern over the escalating U.S.-China trade war and expectations of further financial easing steps by the U.S. Federal Reserve and European Central Bank.

The 10-year Japanese government bond (JGB) yield hovered close to a 3-year low of -0.215% hit on Tuesday, below the -0.2% mark perceived by markets as the BOJ’s line in the sand.

Shekhar G

Shekhar looks after the editorial duties of the News column. He possesses a deep background in Share market and market research. Prior to joining Reliable Magazine, he was a full-time market investment adviser at Investing. Shekhar holds degrees in Finance and Economics from the University of Boston.