Bank of Japan pledges to guide yield curve control with ‘greater flexibility’

Japan’s central bank on Friday pledged greater flexibility in yield curve control policy, while keeping its ultra loose interest rate intact and revising its median consumer inflation forecast upward for the current fiscal year.

The Bank of Japan added it will offer to purchase 10-year JGBs at 1% every business day through fixed-rate operations, unless no bids are submitted — a move that effectively expands its tolerance by a further 50 basis points.

In a policy statement, the Bank of Japan said it will “continue to allow 10-year JGB yields to fluctuate in the range of around plus and minus 0.5 percentage points from the target level.”

“While it will conduct yield curve control with greater flexibility, regarding the upper and lower bounds of the range as references, not as rigid limits, in its market operations,” it added.

Still, the BOJ held its short-term interest rate target at -0.1% after a two-day meeting. It also raised its median forecast for inflation to 2.5% for fiscal 2023 after its July meeting, up from its 1.8% prediction in April.

“Sustainable and stable achievement of the price stability target of 2%, accompanied by wage increases, has not yet come in sight, and thus the Bank needs to patiently continue with monetary easing under Quantitative and Qualitative monetary easing with yield curve control,” the BOJ said in a statement following its July meeting.

BOJ Governor Kazuo Ueda has been under pressure to tighten its monetary policy, with inflation consistently exceeding its 2% target for 15 straight months, while wages are finally starting to increase after years of stagnation.

However, the central bank has said inflation will slow toward the end of this year — a view that’s shared by the Japanese government.

On Friday, the BOJ also downgraded its inflation median forecast for 2024 to 1.9% from 2% previously, while retaining its 2025 forecast for 1.6%.

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