Bank of Japan Keeps Monetary Policy Steady, No Change to JGB Yield Band as Expected

The Bank of Japan as widely expected kept unchanged its -0.1% target for short-term interest rates, and 0% for the 10-year government bond yield unanimously. There was much anticipation being Governor Ueda’s second decision at the BoJ. BoJ inaction drives relief through global carry trades. The yen weakened, move higher for yen crosses, JGB yields rallied in bull flattener fashion and the Nikkei gained ground. Any doubt there about BOJ policy change has been removed until the next meeting, scheduled for July 27 & 28.

BOJ June 2023 Monetary Policy Decision Statement

BOJ Monetary Policy Highlights

  • Bank of Japan short-term interest target kept at -0.1%
  • 10-year JGB yield target remains around 0%
  • The BOJ yield curve control program unchanged to allow for 10-year bond yields to target a band in and around 0.50%.
  • Yield curve control (a unanimous vote)
  • BOJ made an amendment to the principal terms and conditions of the Complementary Deposit Facility – adds that there is no change in the framework of the Complementary Deposit Facility and the interest scheme to promote lending.

Bank of Japan Governor Ueda press conference at 0630 GMT (0230 US Eastern time)

BOJ On Japan’s Economy:

  • Japan’s economy picking up
  • Japan’s economy likely to continue recovering moderately
  • Japan’s core consumer inflation likely to slow pace of increase towards middle of current fiscal year
  • Exports, output moving sideways
  • Capex increasing moderately
  • Consumption increasing moderately
  • Inflation expectations moving sideways after heightening
  • Uncertainty regarding Japan’s economy is very high

Inflation is running at nearly double the BoJ’s 2% inflation target. Tokyo core CPI (ex-fresh food and energy) accelerated to 0.6% m/m SA in April for the hottest reading since January 2021.

With the fairly stable composite PMI that may signal GDP strength in Q2, the effects drove yen appreciation dampening high prices of imported raw commodities and persistent yen weakness.

Inflation-adjusted labour earnings have continued to decelerate with the April reading down 3% y/y, but the effects of the annual Spring wage negotiations registered the biggest pay gains in 30 years at about 3.7% y/y. It can take several months for these gains to filter through official lagging data and so we might not have an accurate handle on nominal and real wage changes for a while yet.

Conduct of yield curve control

While significantly increasing the amount of JGB purchases, the Bank expanded the range of 10-year JGB yield fluctuations from the target level: from between around plus and minus 0.25 percentage points to between around plus and minus 0.5 percentage points.

The Bank will offer to purchase 10-year JGBs at 0.5 percent every business day through fixed-rate purchase operations, unless it is highly likely that no bids will be submitted. In order to encourage the formation of a yield curve that is consistent with the above guideline for market operations, the Bank will make nimble responses for each maturity by increasing the amount of JGB purchases even more and conducting fixed rate purchase operations.

Source: BoJ

From The Traders Community News Desk