BOJ should revise policy if key bond yield keeps rising, economists say

div classBodysc17zpet90 cdBBJodivpBy Daniel Leussinkp

pTOKYO Reuters – The Bank of Japan BOJ should revise its yield curve control YCC policy or scrap it if the benchmark Japanese government bond JGB yield keeps rising to the upper limit of the central banks range, one third of economists surveyed by Reuters said.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pThe BOJ in recent weeks has defended its ultralow interest rate policy under which it pledges to keep 10year yields around 0, in contrast with the U.S. Federal Reserve which is pushing aggressively for sizeable rate hikes. p

pUnder YCC, the BOJ sets an implicit band around its 0 target and allows longterm rates to move up and down by 0.25.p

pBut with moves staying stubbornly near the upper end of that range, at a time when the yen has plunged to twodecade lows, the central bank has stepped in to buy debt repeatedly from last month to defend the 10year yield target.p

pUncertainty in the global economy spurred by soaring energy and raw material prices largely due to Russias war in Ukraine as well as supply chain disruptions have caused inflation to surge in the United States and elsewhere, prompting some central banks to hike rates already.p

p“The United States has become aggressive in monetary tightening, while Japan is sticking to its easy policy,” said Yusuke Shimoda, senior economist at Japan Research Institute.p

p“The Bank of Japan has to take some kind of action as theres no doubt upward pressure on interest rates will get stronger due to that gap in monetary policy.”p

pFive economists said the BOJ should raise the upper range of the YCC band if the 10year JGB yield keeps rising to it. p

p“One possibility is to widen the allowable range to 0.50 from the current 0.25,” Shimoda added. p

pFour others in the poll said the BOJ should target yields with a shorter maturity than the 10year bond, while one economist said it should give up its 0 target and YCC entirely. p

pThe 10year JGB yield stood at 0.245 on Friday.p

pAt its twoday rate review ending next Thursday the central bank is widely expected to keep its shortterm interest rates at 0.1 and hold onto its longterm rate target.p

pThe BOJ last widened the yield band under YCC in March 2021, from a prior range of 0.20 around its zero percent target.p

p“Its necessary for the BOJ to explain whether the fluctuation range is still appropriate,” said Mari Iwashita, chief market economist at Daiwa Securities.p

pEighteen of 28 economists surveyed said the BOJ should keep offering to buy unlimited amounts of JGBs if the 10year yield keeps rising to the banks upper range.p

pJapan‘s economy was expected to expand an annualised 5.1 in the current quarter, slightly above March’s prediction of 4.9, according to the median forecast of more than 40 analysts in the April 1121 poll.p

pThe worlds thirdlargest economy is projected to grow 2.5 in the current fiscal year that began this month, and 1.6 in fiscal 2023 after an expected 2.3 expansion in fiscal 2021.p

pCore consumer prices, which exclude volatile fresh food prices, will rise 1.7 this fiscal year and 0.8 in fiscal 2023, after a small 0.1 in the previous fiscal year, the poll showed.p

pFor other stories from the Reuters global economic poll:p

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pp Reporting by Daniel Leussink Additional reporting by Kantaro Komiya Polling by Md Manzer Hussain and Vivek Mishra Editing by Himani Sarkarp

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