US economy

BOJ divided over side effects of easy policy – October minutes


© Reuters. A security officer is seen through a chain link as he stands guard outside the Bank of Japan headquarters in Tokyo

By Leika Kihara

TOKYO (Reuters) – Bank of Japan policymakers disagreed on the feasibility of allowing bond yields to move more flexibly around the central bank’s zero percent target, reflecting division within the board on how to address the growing dangers of prolonged easing, minutes of their October rate review showed on Wednesday.

The rift highlights the BOJ’s deepening dilemma. With inflation distant from its 2 percent target, it is forced to maintain a massive stimulus programme despite the negative spillover such as the hit to financial institutions’ profits from years of near-zero interest rates.

One member said the central bank should not rule out options such as widening the range in which bond yields could move, or shortening the duration of the government bond yield that it targets from the current 10-year yield, the minutes showed.

“If the long-term rate target was maintained around zero percent for a long time, the positive effect of monetary easing on inflation expectations could diminish,” the member said.

Another member disagreed, however, saying that doing so when inflation remained low could undermine the BOJ’s credibility by casting doubt on its commitment to achieve its inflation target.

“Making the range of movement in long-term yields more flexible, as anticipated by some market participants, could be viewed as though the Bank’s commitment to achieving 2 percent inflation was compromised,” the member said.

The nine-member board agreed on the need to maintain monetary policy ultra-loose for the time being, while staying vigilant to the impact of prolonged stimulus on Japan’s banking system, according to the minutes.

At the Oct. 30-31 meeting, the BOJ kept policy steady and its Governor Haruhiko Kuroda ruled out a near-term rate hike in the face of risks from global trade disputes.

But the central bank also notched up its warning on financial vulnerabilities from three months ago, nodding to concerns within the board on the rising strain years of easy policy is inflicting on financial institutions.

Under a policy dubbed yield curve control (YCC), the BOJ guides short-term rates at minus 0.1 percent and the 10-year bond yield around zero percent.

It made tweaks to YCC in July to allow long-term rates to move more flexibly around its zero percent target. But the step has done little to steepen the yield curve, as heightening global uncertainty drove investors to the safety of Japanese government bonds.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.