BOJ October 30 / 31 Monetary Policy Board meeting decision – no extension of the cap to 1.5% but instead formalised the 1% cap.
- Keeps short-term interest rate target at -0.1%
- Keeps 10-year JGB yield target around 0%
-
Widens reference range to 1.0% point up and down each around its
10-year JGB yield target vs previous 0.5% point -
Flexibly increase JGB buying, fixed-rate operations and collateral
fund-supply operations
- Changes language around 1.0% 10-year JGB yield cap
- Decides to keep yield target but make 1% a reference cap
- Will guide market operations nimbly
-
Will regard upper bound of 1% for 10-year JGB yield as reference in
its market ops -
Will determine offer rate for fixed-rate JGB buying ops each time,
taking account market rates and other factors - Decides to make YCC more flexible
-
Japan’s inflation outlook overshooting but due largely to prolonged
rises in import costs
- Wages, prices must strengthen in virtuous cycle
-
BOJ will patiently continue monetary easing under YCC to support
economic activity, create environment where wages rise more -
Appropriate to make YCC more flexible given very high uncertainty
over economy, markets -
Strictly capping long-term rate with fixed-rate purchase operation at
1% will have strong positive effects but could also entail large side
effects -
As such, boj decided to conduct YCC mainly through large-scale JGB
buying and nimble market operations - BOJ makes no change to its forward guidance
Inflation forecasts boosted:
-
Board’s core CPI fiscal 2023 median forecast at +2.8% vs +2.5% in
July -
Board’s core CPI fiscal 2024 median forecast at +2.8% vs +1.9% in
July -
Board’s core CPI fiscal 2025 median forecast at +1.7% vs +1.6% in
July
-
Board’s real GDP fiscal 2023 median forecast at +2.0% vs +1.3% in
July -
Board’s real GDP fiscal 2024 median forecast at +1.0% vs +1.2% in
July -
Board’s real GDP fiscal 2025 median forecast at +1.0% vs +1.0% in
July
BOJ quarterly report:
- Japan’s economy likely to continue recovering moderately
-
Inflation likely to slow, then re-accelerate as wages rise, inflation
expectations heighten - Uncertainty over Japan’s economic, price outlook very high
-
Must be vigilant to financial, fx market moves and their impact on
Japan’s economy, prices
BOJ quarterly report on risks:
- Uncertainty over Japan’s economy, prices is extremely high
-
Need to closely watch financial, currency market moves, their impact
on Japan’s economy, prices - Risks to price outlook skewed to upside in fy2023
-
Must closely watch whether favourable cycle of wage growth, prices
will strengthen -
Risks to economic outlook generally balanced in fy2023 and fy2024,
but skewed to downside for fy2025 -
There is possibility wage growth may not strengthen as expected next
year onward, causing prices to deviate downward
Summary bullets are via Reuters.
The main news is that the 1% 10-year JGB yield cap has been formalised. The Nikkei reported on Monday US time that Bank was considering a 1.5% cap, but that has not panned out.
Stay tuned for Bank of Japan Governor Ueda’s news conference at 0630 GMT.
BoJ Governor Ueda
