Markets are testing the Bank of Japan (BOJ), seeking to break its resolve to cap bond yields as soon as its policy decision on Wednesday, as rising inflation challenges the central bank's ultra-easy monetary policy.
A man walks past Bank of Japan's headquarters in Tokyo, Japan, June 17, 2022. REUTERS/Kim Kyung-Hoon/File Photothe Bank of Japan , seeking to break its resolve to cap bond yields as soon as its policy decision on Wednesday, as rising inflation challenges the central bank's ultra-easy monetary policy.
With Governor Haruhiko Kuroda repeating the need to keep policy ultra-loose, the BOJ could opt to stand pat until his successor takes the helm in April.Bond sellers broke the BOJ's 0.5% cap on Friday, less than a month after the policy tweak, forcing emergency buying from the central bank to bring the yield back down.It could make technical tweaks to smooth the yield curve, such as tinkering with its bond-buying or other market operations.
Doing so now would run counter to Kuroda's pledge to keep monetary policy ultra-loose until the recent cost-driven inflation is replaced by prices rising on sustained strong demand. After ditching that negative rate, the BOJ could start paying interest on excess reserves to mop up liquidity from the economy.
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