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Bank of Japan board member Hitoshi Suzuki signaled in interviews that the BOJ may raise interest rates before inflation hits its 2% target. He also said the BOJ could slow or change the way it buys exchange-traded funds (ETF) purchases in the future. 

JGB 2008 2017

Image: JGB since 2008-2017 Yeield Curve is all BOJ has left to play with?

BOJ Japnese equity ETF buys have been a major source of the Nikkei Dow surge which in turn has fueled the S&P500 and other indices to record highs. Throw in the cheap money funded by the JGB yields and you ahve potent cocktil for asset price elevation..

Suzuki carried out interviews with the Mainichi and Jiji news agencies. The interviews appear to be taking a clear lead from the U.S. Federal Reserve playbook to hint or fuel rumors to guage market reaction. For the first time we see there is room to debate a fine-tuning of the central bank’s yield curve control (YCC) policy.

“It’s inappropriate for interest rates to show no changes until the 2 percent inflation target is hit, and then jump abruptly once the target is achieved,” Suzuki said in the interview with the Mainichi daily newspaper.

“There is room to debate a fine-tuning of YCC once inflation heads near 2 percent, so that markets can gradually accept the changes,” he said.

It was has concerned most prudent analysts the cheap money has not only created an unrealistic risk profile and by failing to ignite inflation has created asset inflation which further has created unreal expectations. Stock markets, particularly in the US continue to rise in the belief they cannot fall because of Central Bank backstops. Signaling BOJ changes to current policy suggests the central bank is ready to alter the current policy.

Szuki said the BOJ’s negative rate policy is having a “significant” impact on financial institutions’ profits.

Another aim of the BOJ policy was to weaken the Yen. on Friday the $USDJPY traded at the lower end of 111.00 closing at 111.50. Higher rates would also sure up the yen and risks of carry trade unwinding should rates rise to fast. Much to consider in the manuipulated environment the BOJ has created. The potential of unitended consquences grows as prices rise.

Source:

BOJ Suzuki signals room to fine-tune yield curve control: media

BIS: Economic Activity, Prices, and Monetary Policy in Japan

 

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