Bank of Japan monetary policy decision and statement - says will manage YCC more flexibly but maintains 0.5% band.
- Maintains short-term interest rate target at -0.1%
- Maintains 10-year JGB yield target around 0%
- Maintains band around 10-year JGB yield target at up and down 0.5% each
Raised their inflation forecasts for this year, but not the next:
- Core-core CPI fiscal 2023 median forecast at +3.2% vs +2.5% in April
- Core-core CPI fiscal 2024 median forecast at +1.7% vs +1.7% in April
- Core-core CPI fiscal 2025 median forecast at +1.8 % vs +1.8% in April
More:
- Will guide yield curve control more flexibly
- Appropriate to heighten sustainability of monetary easing
- Will operate yield curve control more flexibly to respond nimbly to upside, downside risks
- Will keep offering fixed-rate operations for 10-year jgb yield at 1.0%
- In order to encourage formation of yield curve that is consistent guideline, BOJ will continue with large-scale jgb buying and make nimble responses for each maturity
- For example, by increasing amount of JGB buying and conducting fixed-rate purchase ops and funds-supplying ops against pooled collateral
- There are extremely high uncertainties for Japan's economy, prices
- Must pay attention to financial, fx markets and their impact on Japan's economy, prices
- Japan's consumer inflation higher than projected in April outlook report
More:
- Wage growth has risen, signs of change have been seen in firms' wage, price-setting behaviour
- Inflation expectations have shown some upward movements again
- If upward movement in prices continue, effects of monetary easing will strengthen through decline in real interest rates
- Strictly capping long-term yields could affect bond market functioning, volatility in other markets
- Such effects are expected to be mitigated by conducting yield curve control with greater flexibility
- If downside risks to economy materialise, effects of monetary easing will be maintained through decline in long-term yields under yield curve control framework
BOJ quarterly report:
- Risk to inflation skewed to upside for fiscal 2023, 2024
- Japan's economy is recovering moderately
- Inflation expectations showing signs of heightening again
- Japan's economy likely to continue recovering moderately
- Japan's economy to continue expanding above potential
- Japan's consumer inflation likely to slow pace of increase, then re-accelerate as inflation expectations, wages rise
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Bolding above is mine. The Bank has given a very minor YCC concession, saying they'll manage it more flexibly. I don't know what that means, but on face value it's a nod to those calling for a wider band. Perhaps we'll see that in the weeks ahead but I am only guessing without more detail from the Bank. The Bank made a point of saying the 0.5% either-way band is still in place but left themselves some flexibility to widen it on a day to day basis to 1%. The Bank could do with some communication lessons. it appears the +/-0.5% is still in place, but there is a 'maybe' to take it to +/-1%. Sheesh.
There was a dissenter. BOJ makes decision on YCC by 8-1 vote:
- Board member Nakamura dissents to decision on YCC
- Nakamura dissents to decision on YCC, considering it was desirable to allow greater flexibility after confirming rise in firms' earnings power from sources such as financial statements statistics
- Nakamura dissents to decision on YCC but in favour of idea of conducting YCC with greater flexibility
Nakamura in favour of getting on with a move towards more flexibility for yields. It appears he was arguing for a firm move to +/- 1%, not this wishy-washy 'maybe 1%' if wiggle room is needed. The longer the Bank of Japan sticks to +/-0.5% the more painful it'll be for them when they do capitulate. And they will.
Bank of Japan Governor Ueda holding back the wave of calls for a tweak. Ueda's press conference is next, coming at 0630 GMT, 0230 US Eastern time.
