The Bank of Japan adjusted its stimulus to allow long-term yields to edge higher while raising its inflation projections, moves that signal it is likely inching closer toward policy normalization. The yen weakened against the dollar.
The BOJ will take a more flexible approach to controlling yields on 10-year government debt, according to its statement Tuesday. That marks a shift from a previous pledge to conduct daily bond buying operations at 1%, a stance that effectively drew a line in the sand at that level.
The bank described 1% as a reference point in its latest statement. The central bank left its negative interest rate untouched.
While the yen had strengthened overnight after the Nikkei reported the likely move to allow higher yields, the Japanese currency weakened beyond the 150 mark against the dollar after the decision. That suggests market players still see the BOJ very much committed to a stimulus stance that marks it as an outlier among global central banks.
Earlier Japan's 10-year yield jumped at the start of trading to a fresh decade high of 0.955% before paring gains.
Before the report, the consensus among economists had been for the BOJ to stand firm in the face of market pressure that pushed the yen to fresh year-to-date lows against the dollar last week and ratcheted up yields close to the 1% mark.
Three quarters of the 45 economists surveyed by Bloomberg forecast no policy change prior to further moves in bond and currency markets and inflation readouts that fueled speculation of tweaks to come.
Governor Kazuo Ueda has indicated the importance of sticking with ultra-easy policy to nurture the economic recovery as the bank steadily approaches its long-sought inflation goal. In particular he has cited the importance of strong wage growth to support a positive inflation cycle before pivoting on policy. Economists expect that move to come early next year.
The BOJ upgraded its inflation projections, saying it now expects a key price gauge to stay well above its 2% target for three consecutive years through fiscal 2024. The nation hasn't seen such steady price growth since 1992.
The new forecast projects 2023 price growth at 2.8%, in stark contrast to the BOJ's initial 1.1% projection issued soon after Russia invaded Ukraine last year. The bank expects the same pace of price growth in the following year, too.
Source : Bloomberg
