Research Briefing | Nov 2, 2023

BoJ to allow 10-year JGB yields to exceed 1%

The Bank of Japan (BoJ) left short- and long-term policy rates unchanged at -0.1% and around 0%, respectively, at the meeting on Oct.31. However, the BoJ decided to tweak the yield curve control (YCC) policy by setting the upper bound of 1% as a reference and by making its Japanese Government Bond (JGB) purchase operations more flexible not to rigidly defend the bound.

What you will learn:

  • The BoJ’s quarterly Outlook Report revised the median forecast for CPI (excluding fresh food and energy) to 3.8% from 3.2% for FY2023.
  • Although we project that a wage settlement next year will be almost as high as the 3.6% increase this year, our inflation forecast is still lower than that of the BoJ.
  • We project that the BoJ will end its negative interest rate policy (NIRP) in April after confirming a reasonably high wage settlement, likely arguing that the economy is on track to stably achieve the 2% inflation target in the coming years.
  • Based on our growth and price forecasts, we still believe that the zero-interest rate policy will continue at least for a few years.
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