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Bank of Japan keeps yield control policy unchanged

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TOKYO — The Bank of Japan on Wednesday maintained ultra-low interest rates, including its 0.5% cap for the 10-year bond yield, defying market expectations it would phase out its massive stimulus program in the wake of rising inflationary pressure.

MARKET REACTION:

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The Japan stock market cheered the BOJ’s decision with the Nikkei share average jumping more than 2% after the midday break. Yields on Japanese government bonds were flat, while futures prices jumped.

Here are some comments from experts:

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SHOICHI ARISAWA, GENERAL MANAGER OF INVESTMENT RESEARCH, IWAICOSMO SECURITIES, OSAKA

“I think the stock market will remain unstable going forward because speculation that the BOJ will tweak its policy will continue. That could escalate when the new governor of the bank will be announced and towards the policy meeting in March.”

“The Nikkei futures rose right after the BOJ’s announcement but I think it was overshot.”

BART WAKABAYASHI, BRANCH MANAGER AT STATE STREET, TOKYO:

“I think there was a lot of underlying messaging in Wednesday’s result. Not only the result itself, the (early) timing of the release — it all seems very scripted. I think that they were making a very definitive point to the market: ‘We’re here to do what we said we’re going to do. We don’t want some crazy speculation, we want to destroy speculation.”

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“One of the comments that stuck out was ‘we will do everything and anything’, and it is just throwing it back at the market and saying: ‘We all just better chill out.’ I think it was just a reaction to the market getting too far ahead of itself and trying to bring some adults to the table.”

MOH SIONG SIM, CURRENCY STRATEGIST, BANK OF SINGAPORE, SINGAPORE

“The can has been kicked down the road and the attention will shift to the next meeting. It’s a question of when, not if.”

CHARU CHANANA, MARKET STRATEGIST, SAXO MARKETS, SINGAPORE:

“I think the speculations will still continue. We have a lot of event risks on the horizon, with nominations for the new BOJ chief due on Feb. 10, followed by the spring wage negotiations in March and the announcement of new BOJ leadership in April.”

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HIROAKI MUTO, ECONOMIST AT SUMITOMO LIFE INSURANCE CO, TOKYO:

“The outlook report raised expected inflation rates to near 2%, with some comment added on heightening inflation expectation. There could be a tweak, including a total scrapping of YCC under the new BOJ governor.”

“I don’t see another change in the March meeting because the government will reportedly announce the new BOJ leadership in mid-February, making the incumbent regime a lame-duck. Perhaps they might announce a review of the side-effects of the current policy though.”

“Amendments to the funds-supplying operation terms are minor and not substantial; they are not something signaling a future policy shift.”

VISHNU VARATHAN, HEAD OF ECONOMICS AND STRATEGY AT MIZUHO BANK, SINGAPORE:

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“It shouldn’t have surprised. Back in December, Governor (Haruhiko) Kuroda already said it’s not a regular thing (regarding) the adjustment of the band … Markets bulldozing the base case to be a further expansion or the extremists out there talking about abandonment, probably did not consider that Governor Kuroda would have thought about credibility issues first.”

“Markets might have taken a bit of a blow and would probably be nursing that … but given that Governor Kuroda is going to handover in April, that means the ground remains somewhat fertile for speculation.”

KEISUKE TSURUTA, FIXED INCOME STRATEGIST AT MITSUBISHI UFJ MORGAN STANLEY SECURITIES, TOKYO:

“I feel like we were sidestepped by the BOJ. Investors will probably start buying bonds (after the market opens) but the buying will be limited because there may be another move by the BOJ in the future as the yield curve remains distorted.”

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CHRISTOPHER WONG, CURRENCY STRATEGIST AT OCBC, SINGAPORE:

“I rather they abandon, or don’t do anything at all.”

“With expectations running high, a no move would disappoint JPY bulls and weakness can return. But this is likely to be temporary as focus shifts to next MPC in March when Kuroda chairs his last.”

TARECK HORCHANI, HEAD OF DEALING, PRIME BROKERAGE AT MAYBANK SECURITIES, SINGAPORE:

“As expected by most economists, BOJ maintained its yield curve control and the previous move to widen the trading band was more to create a more efficient market, which didn’t work as the market expected a change of policy and pushed BOJ to buy even more bonds.”

“The knee-jerk reaction has been a reversal in the USD/JPY short position ahead of the BOJ meeting and pushing USD/JPY 2% higher at 130.50.” (Reporting by Rae Wee and Ankur Banerjee in Singapore; Junko Fujita, Kantaro Komiya and Tom Westbrook in Tokyo; Editing by Rashmi Aich)

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