Japan: Incoming Governor Ueda is entrusted to tweak the YCC
At Governor Kuroda’s final policy meeting, the Bank of Japan (BoJ) left short-term policy rates at -0.1% and long-term rates at around 0%. Despite mounting pressures on the 10-year JGB, the target range was kept at +/-0.50ppt.
While we did not discount the possibility of a widening of the band to secure a smooth leadership transition, Kuroda appears to have avoided a sharp rise in JGB yields before the end of the fiscal year. In particular, further losses in the domestic bond portfolio threaten the profitability of the already vulnerable regional banks.
What you will learn:
- The decision to uphold policy rates comes at a cost. The BoJ will be forced to continue its massive JGB purchases to stem speculation of additional YCC tweaks, which will worsen market liquidity.
- Higher inflation is fuelling upward pressure on yields. The mid-February Tokyo CPI offered little relief on core-goods price hikes. We expect core-goods inflation to stay elevated until Q2, before calming down as cost pressures abate.
- Under Kazuo Ueda’s leadership, we think the BoJ will tweak its current Yield Curve Control (YCC) policy in Q2 to let off market pressures and buy time for a review of the overall policy framework.
Tags:
Related Resouces
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
‘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
Post
Japan’s supply-driven food inflation to persist longer than expected
We have revised our CPI forecast upwards for this year and next, due to more persistent supply side-driven food inflation, led by soaring prices of rice. Despite the significant revision to the short-term inflation path, we don't expect the Bank of Japan (BoJ) to react with a rate hike.
Find Out More