Here's What Market Watchers Are Saying About BOJ Policy Tweaks
(Bloomberg) -- It was the longest wait in two years.
The Bank of Japan hadn’t taken so long to announce a policy decision since the introduction of yield-curve control in September 2016. Finally, at 1:03 p.m. in Tokyo Tuesday, the central bank left its key interest rates unchanged and pledged to keep them at extremely low levels for an “extended period.”
While also taking a number of steps to minimize market distortions stemming from its ultra-accommodative stance, the BOJ indicated it would tolerate 10-year yields deviating as much as 0.2 percent from zero, compared with 0.1 percent now. The decision saw the benchmark bond yield dip four basis points to 0.062 percent, the lowest in more than a week. The yen touched its weakest level since July 20, both against the dollar and the euro.
For equity strategists, all eyes were on the announced shift in purchases of exchange-traded funds toward assets linked to the Topix index. Speculation had swirled that the central bank, dubbed the Tokyo whale, was considering changing how it buys shares through the ETF fund program.
Bank stocks were the biggest casualties, dragging the benchmark Topix index to a one-week low on speculation the shift will stoke wider volatility in bond yields, while the Nikkei 225 Stock Average was basically flat.
Here’s what strategists and investors said:
BNP Paribas (Ryutaro Kono, Hiroshi Shiraishi)
- The key takeaway from Tuesday’s announcement is the introduction of forward guidance vis-à-vis the current yield-curve control framework, BNP strategists wrote in a client note
- This new language “seems to be aimed at quashing speculation that an outright adjustment to the YCC framework may be imminent. This amounts to a reinforcement of existing monetary stimulus measures rather than a tweak in the tightening direction”
- Unless inflation picks up materially, the BOJ “will not allow a further rise in the long-term rate”
- “Essentially, the BOJ seems to have accepted the widening of the range as the price to pay for enabling itself to prolong monetary easing”
MUFG (Lee Hardman)
- “The BOJ’s decision to introduce forward-rate guidance and to make policy easing more sustainable was mainly in response to the weaker inflation outlook,” according to currency strategist Hardman
- “The forward rate guidance is the more dovish surprise, which could encourage a weaker yen, although it is partly offset by the BOJ’s willingness to allow yields to move up and down to some extent alongside making asset purchases more flexible”
Danske Bank A/S (Arne Lohmann Rasmussen, Morten Helt)
- “We see today’s announcement from the BOJ as positive for global fixed income markets,” according to Danske’s Rasmussen and Helt
- “Despite the range for 10-year JGB yields having now been widened to 0.2 percent either way from previously 0.1 percent, the outlook is now for relatively stable JGB yields for a prolonged period”
- “Today’s news is not expected to change the flow into Europe, if anything the new forward guidance could accelerate the inflows”
Mitsubishi UFJ Kokusai Asset Management Co. (Kiyoshi Ishigane)
- “Most people would think of this as largely in line with market expectations but to some it could’ve been slightly dovish than what they anticipated,” said Ishigane, chief strategist at the company
- “Some people thought the BOJ may lift its long-term yield target because there’d been such media reports”
- “It feels like, for 70 to 80 percent of the people, the results are in line with expectations where as maybe 20 to 30 percent are taking this as somewhat dovish”
Daiwa Securities Co. (Mari Iwashita)
- “By introducing forward guidance in its statement, the BOJ wants to show that it will persistently continue easing and won’t raise the level of yields rapidly or sharply,” said Iwashita, chief market economist
- That it didn’t address concerns about the side effects of its policy indicates the “decision today is merely technical to make the current easing scheme sustainable for a long time as price outlook was lowered”
Mitsubishi UFJ Kokusai Asset Management Co. (Akio Kato)
- “Having lowered the price outlook, the BOJ is in no position to wind back the YCC scheme,” said Kato, general manager of trading at the company
- “While the bond buying plan is unchanged, the BOJ is likely to keep cutting purchase amounts as necessary.”
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