The Bank of Japan is unlikely to make changes to its yield curve control program at next week’s policy meeting, judging from Governor Kazuo Ueda’s recent dovish tone, according to a former top official at the finance ministry.
(Bloomberg) — The Bank of Japan is unlikely to make changes to its yield curve control program at next week’s policy meeting, judging from Governor Kazuo Ueda’s recent dovish tone, according to a former top official at the finance ministry.
“Given Ueda’s comments in India, it’s unlikely that the bank will modify the instrument at the upcoming meeting,” said Mitsuhiro Furusawa, a former vice minister of finance for international affairs.
“In the past I thought July is possible, but the way he’s speaking, if he moves next week, it’ll be a major surprise.”
Earlier this week Ueda said the bank will continue with easy policy unless there’s a shift in its view of where it is relative to its price target.
Investors took the governor’s comments as an indication there will be no policy change at the meeting ending Friday, prompting a weakening of the yen against the dollar.
Still, Furusawa said the bank may change the way it controls yields in September or October, suggesting that a near-term adjustment would be better in his view.
“The YCC isn’t distorting the bond market or making it difficult to issue bonds at the moment,” said Furusawa, who now heads the Institute for Global Financial Affairs at Sumitomo Mitsui Banking Corp.
But “the bank needs to revisit it, as it’s a fairly irregular policy,” he said.
Rather than tweaking yield curve control, the BOJ should eliminate it altogether while clearly communicating to the market that the change won’t mean the end of monetary easing, Furusawa added.
The former top currency official said that even if YCC is adjusted in the future, he doesn’t expect it to result in a sharp appreciation of the yen.
“The YCC shift won’t cause the yen to strengthen all at once, as it would simply be a review of monetary policy tools, not a major change in fundamentals,” he said.
As for the BOJ’s negative interest rate, Furusawa said the BOJ won’t scrap it until next year at the earliest.
Speaking of recent yen moves, Furusawa said the Japanese currency could still potentially weaken past 145 against the greenback.
But he said the moves wouldn’t resemble those from last year, when the currency eventually fell past 150 against the dollar, prompting government intervention along the way.
“The situation is different from last year,” Furusawa said.
Rate hikes in the US are likely peaking, and Japan will probably review its monetary policy sooner or later, he said. “Another intervention is unlikely.”
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