The Bank of Japan’s surprise move to widen its bond yield trading band triggered a sharp reaction in financial markets. Here are some of the initial takes from central bank-watchers.
(Bloomberg) — The Bank of Japan’s surprise move to widen its bond yield trading band triggered a sharp reaction in financial markets. Here are some of the initial takes from central bank-watchers.
Masamichi Adachi, chief Japan economist at UBS Securities and a former BOJ official:
- “This is a step toward an exit however the BOJ calls it. This opens a door for a chance of a rate hike in 2023 under a new governorship. A next step is probably adjusting easing bias in forward guidance likely early next year”
- “Today’s change is a massive surprise and once again shows the strong need of improvement in their communications with market participants but at least they didn’t ditch the negative rates or the 10-year yield target around 0%”
- “The BOJ must be aware these kinds of tweaks are easier before Kuroda leaves and it’s surprising that Kuroda swallowed the risk of getting heavy criticism and being a villain. Still, he probably thought it’s worth doing for his successor after a decade-long massive stimulus”
Mari Iwashita, chief market economist at Daiwa Securities Co.:
- “This is totally a surprise. As the market focus has been on the joint accord with the government and people let their guards down, the BOJ pushed through this adjustment. Its surprise impact is strong for the yen and stocks”
- “It makes sense they widened the yield band as they clearly stated the deteriorating functionality of the bond market. But why this time?”
- “Speculation over the joint accord under the new BOJ governor will continue, but they won’t be able to make an actual move for a while until the trend of wages becomes clear”
Harumi Taguchi, principal economist at S&P Global Market Intelligence:
- “The communication we’d got from the BOJ so far just didn’t indicate an adjustment was coming.”
- “I did think this sort of adjustment will be needed at some point, but there’s definitely a sense of abruptness”
- “I think the central bank is still getting closer to conducting a review. With the BOJ holding more than 50% of bonds it’s clear that it’s difficult to continue with the current policy. On the other hand, it’s continuing to buy JGBs and potentially loosening the government’s fiscal discipline. We’re also at the time to take another look at the joint statement with the government”
- “One background to this shift is that the move to pass on prices has been progressing more than expected if you look at data such as the Tankan report. Firms’ inflation expectations are past 2% as well, so the BOJ may have thought that widening the band may not have too much of an impact”
Naka Matsuzawa, chief strategist at Nomura Securities Co. in Tokyo:
- “Yield curve control is approaching an effective end if a wider trading band is the BOJ’s way of normalizing policy”
- “Market volatility will only rise further”
–With assistance from Masahiro Hidaka and Toru Fujioka.
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
