BoJ sticks to its yield curve control strategy
The Bank of Japan stuck to its monetary policy at today’s (17 June) meeting, maintaining current short-term policy rates at -0.1% and long-term rates at around 0%.
The BoJ’s new strategy of offering daily, unlimited fixed-rate JGB purchases had been working to defend the +/-0.25% range for 10yr JGB, with purchases lower than previously. Earlier this week, however, the BoJ bought a larger amount, showing its determination to protect the range.
What you will learn:
- Meanwhile, ultra-long yields have been trending higher. We think this reflects an increase in supply, in addition to rising global yields. We expect that steepening pressure from the long end will calm down in H2 as the supply-demand balance improves.
- The April CPI rose to 2.5% y/y – the highest rate since 2008 excluding VAT-induced spikes. Given the large declines in the yen since end-February and the lag in currency pass-through, core-CPI will likely rise higher in H2. Still, we don’t forecast sustained inflation, and expect wages to stay flat.
- We see little chance of the BoJ adjusting its yield curve control strategy given high inflation will prove temporary and muted concerns about policy sustainability. A new communication strategy introduced in April also means we generally don’t expect the 10yr yield to stay above 0.25%.
Tags:
Related posts
Post
Japan’s tariff turbulence to flatten near-term growth
We've cut our GDP growth forecasts for Japan by 0.2ppts to 0.8% in 2025 and by 0.4ppts to 0.2% in 2026, reflecting higher US tariffs and heightened global trade policy uncertainty. We now forecast that Japan's economy will barely grow over 2025-2026 on a sequential basis.
Find Out More
Post
25% auto tariffs especially painful in Japan and South Korea
US tariffs of 25% on all automobile and auto parts will weigh heavily on the Japanese and South Korean automotive sectors. A GTAP analysis suggests Japanese and South Korean automotive production will each shrink by approximately 7%. The impact is larger than suggested by bilateral trade data, because vehicles assembled in other countries before being shipped to the US will also be affected, dampening domestic auto parts production.
Find Out More
Post
‘Liberation Day’ 24% tariff will limit Japan’s growth
The 'Liberation Day' tariffs, together with separately announced higher tariffs on auto imports to the US, will lead us to cut our growth forecast for Japan. The direct impact of the tariffs will end the modest growth we projected in March, and we now think the economy will barely grow in 2025-2026. This initial estimate does not consider the indirect impact from high trade policy uncertainty and retaliation from other economies.
Find Out More