BOJ preview: YCC tweak on the cards amid sticky inflation, high yields

investing.com:

Investing.com-- Analysts expect the Bank of Japan to potentially further tweak its yield curve control (YCC) policy when it meets on Tuesday after recent data showed an uptick in Japanese inflation, while rising bond yields and a weakened yen also piled on pressure. 

While the central bank is widely expected to maintain its ultra-low interest rates, signs of sticky inflation could see the bank potentially widen its yield curve control band- somewhat tightening monetary conditions in an otherwise ultra-loose environment.

Recent media reports- from Nikkei and Bloomberg- also suggested that the bank was considering such a move, amid mounting pressure from a sell-off in bond markets through October. 

Japanese benchmark 10-year yields, which the BOJ currently allows to trade in a band of -1% to 1% under the YCC policy, were close to testing the central bank’s upper target. 10-year yields hit an over 10-year high of 0.89% on Monday. 

The bank was seen intervening in bond markets several times through October to calm overheated yields. 

Bank of America analysts said that the BOJ could potentially widen its YCC target range to -1.5% to 1.5%. Analysts at ING said that the bank may leave its current 1% range intact, but instead raise the midpoint target for the range to 0.25% or 0.5% from 0%. 

“The weakening yen is putting more pressure on inflation, which will eventually hurt consumption, and a sharp rise in rates will likely hurt business investment. Increasing bond purchase operations, meanwhile, will put more of a burden on the BOJ,” ING analysts wrote in a recent note. 

A change in the BOJ’s inflation forecasts is widely expected, given that core inflation- which excludes volatile fresh food prices- has exceeded the bank’s 2%