BOJ to carry out yield curve control with 'greater flexibility'

investing.com:

Investing.com — The Bank of Japan kept interest rates at ultra-low levels on Friday and said that while it will continue with its yield curve control (YCC) operations, it will adopt a less strict approach to keeping yields within its target range. 

The BOJ maintained its range for yields on 10-year government bonds in the range of negative 0.5% to 0.5%, but said that the range will be used as “references, not as rigid limits.” 

The bank left short-term interest rates at negative 0.1%, and said it will still carry out its monetary easing policy to increase wage growth and bring inflation closer to the 2% annual target range.

But the bank flagged more flexibility in its monetary easing, citing “high uncertainties for economic activity and prices.”

“It is appropriate for the bank to enhance the sustainability of monetary easing under the current framework by conducting yield curve control with greater flexibility and nimbly responding to both upside and downside risks to Japan’s economic activity and prices,” the BOJ said in a statement. 

The move marks a potential shift in the BOJ’s ultra-dovish stance, with the bank also flagging substantially higher inflation over the next two years.

The bank now expects core consumer price index inflation of 3% in fiscal 2023, and then trend around 1.5% to 2% in fiscal 2024 and 2025.

10-year government bond yields shot up over 13% after the decision, crossing the BOJ’s 0.5% upper band to hit a high of 0.517%. 

But the yen slid 0.8%, amid some speculation that the move was not as hawkish as markets were pricing in. 

The BOJ had last widened its YCC policy in December, amid pressure from high inflation and as traders began to question just how long the bank could control yields.

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