The Bank of Japan has slightly loosened the shackles on its 10-year yield target and said it will review its yield-curve control policy, surprising financial markets and sending the yen sharply higher.
Here are some comments from experts:
HIROSHI NAMIOKA, CHIEF STRATEGIST AND FUND MANAGER, T&D ASSET MANAGEMENT, TOKYO:
“It was a surprise decision at a time when the market had expected a lame-duck situation near the end of Governor Kuroda’s term … it was a nice move, including the fact that it came against the economists’ expectations. The current policy framework would have mandated an endless bond-buying if everyone expects (a shift). Kudos to the BOJ for the surprise.
“It could have been the last chance for the BOJ to move, amid incoming U.S. recession and the end of the Fed’s rate hikes. If later, it would have caused a much bigger risk of sharp yen strengthening and other market fluctuations.”
BART WAKABAYASHI, BRANCH MANAGER, STATE STREET, TOKYO:
“They have these two bazookas left – removing the YCC and bringing interest rates up, even possibly to positive territory. There are huge bazookas that would move the yen strongly.
“Maybe this is a baby step to test out the strategy and see what the market reaction is, and how much it’s reacting.
“I think we’re seeing the first toe in the water.”
KERRY CRAIG, GLOBAL STRATEGIST, JP MORGAN ASSET MANAGEMENT, MELBOURNE:
“The move came earlier than I had expected, but is a step towards the normalization process of policy in Japan. However, it is only a first step and yield-curve control (YCC) remains in place, as does negative rate strategy.
“Further adjustments would require the view that inflation has become persistent and that YCC was perhaps no longer necessary, or that the negative impacts of YCC are outweighing the supportive ones as inflation rises. The market implications are most prevalent in the forex markets … the hint that the BOJ is moving incrementally away from ultra-loose policy should be yen positive in the near term.”
CAROL KONG, CURRENCY STRATEGIST, COMMONWEALTH BANK OF AUSTRALIA, SYDNEY:
“I think the move was certainly unexpected, to say the least. And dollar/yen just sold off sharply on the back of the YCC revision, and I think that does pave the way for a full abandonment of the YCC program, and probably a pivot from the ultra-dovish monetary policy stance in the future.”
AYAKO FUJITA, CHIEF ECONOMIST, JP MORGAN SECURITIES, TOKYO:
“Because it would have been hard to tweak the scheme after the market completely prices it in, the decision was a reasonable one – the BOJ could not keep letting the market expect (the change).
“Regardless of the leadership, whether Kuroda or a new governor, the tweak was expected to some extent given the changing fundamentals, where the price inflation and yield expectations were actually rising.
“We do not expect further tweaks to the YCC (in January and March meetings) because that would harm the market functions.”
MOH SIONG SIM, CURRENCY STRATEGIST, BANK OF SINGAPORE:
“They’ve widened the band, and I guess that came earlier than expected. It raises questions as to whether this is a precursor of more to come, in terms of policy normalization.
“The writing’s on the wall that perhaps the sharp yen weakness that we’ve seen previously was uncomfortable for policymakers…it’s clear that it adds to the yen strength story next year.”
CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE:
“The timing of the policy tweak is a surprise, though we have been expecting the move to come in 2Q 2023.
“The tweak may seem modest but is significant for a central bank that has held dovish for a long time. The implication is modest improvement from wide UST-JGB yield differentials…and a moderate-to-softer USD profile can lead to further downside in USDJPY.”
(Reporting by Rae Wee, Ankur Banerjee and Tom Westbrook in Singapore, Scott Murdoch in Sydney and Kantaro Komiya in Tokyo; Editing by Jacqueline Wong and Himani Sarkar)