A summary of comments from Bank of Japan (BOJ) policymakers at their December meeting showed the central bank saw the need to keep interest rates ultra-low, but also mentioned that once the central bank is ready to unwind its accommodative policy, it must examine whether markets are ready and raise rates. areas that may be at risk.
Most controversial at the December meeting was the BOJ’s shift in the target range for the benchmark 10-year government bond yield by 0.5 percentage points on either side, a move that caught economists and investors off guard.
According to one member, increasing the target level of volatility is not to change the direction of monetary easing, but to help improve the functioning of the bond market and make the current monetary easing policy more sustainable – a statement that is not the same as the black Tian Dongyan’s remarks after the meeting were consistent.
The summary of the meeting pointed out that the members believed that the deterioration of the role of the bond market, if it continued, would undermine the positive effect of the Bank of Japan’s easing policy.
It was emphasized at the meeting that the Bank of Japan must expand its control over the range of the bond yield curve in response to the decline in market effects, but even so, the fact that Japan’s strong monetary easing policy continues has not changed.
One board member also ruled out the need to review the BOJ’s 2 percent price target, the subject of intense speculation ahead of the meeting.
According to the summary of the meeting, it was considered appropriate to maintain accommodative policy for now, but at some point the BOJ must conduct a review of monetary policy to weigh the pros and cons of current measures. Also, it would be inappropriate to adjust the BOJ’s inflation target, as this would dilute the policy objective and make its monetary policy less effective.
The yen fell 0.6% against the dollar after the meeting summary was released, as its content reinforced the central bank’s relatively dovish view. By lunchtime, the yen was trading at 134.30 per dollar, from 133.50 before the wrap-up.
Nomura economist and former Bank of Japan board member Takahide Kiuchi said after the release of the meeting summary that the market would remain on high alert for surprises, as it did when the Bank of Japan announced the introduction of negative interest rates, leaving markets in doubt for a while.