BoJ Governor Kuroda (post-meeting press conference) says he is not expecting 10yr JGB yields to continue trading with yields above 0.5%, and there is no need to further expand its bond target band; today's decision is not a change in BoJ's monetary policy

ECONOMY:

• Kuroda says the economy is picking up.


• Economy is still on a path towards recovery from the pandemic.


• Sees output gap closing soon and turning positive.


• Government stimulus and BoJ easing will bring Japan's growth rate above its potential.

INFLATION:

• Reiterates that inflation is expected to slow in the latter half of 2023.


• Core CPI is around 3% now, but seen falling to below 2% next year.


• Kuroda says he cannot say the BoJ has reached a stage where prices are expected to grow sustainably and stably.


• Monetary easing since 2013 has made conditions such that there is not deflation.


• Says it is not easy to identify price trends as there are many confounding factors.


• BoJ is not in a situation where it sees 2% price target being achieved sustainably.

WAGES:

• BoJ aims to achieve inflation goal sustainably in tandem with wage growth.


• It is important to support the economy and encourage companies to raise wages.


• Labour crunch is expected to push up wages from now on; sees the rate of wage growth accelerating.


• A path is becoming visible where wages and prices are gradually rising.

MARKET OPERATIONS:

• Says he is not expecting 10yr JGB yields to continue trading with yields above 0.5%, and there is no need to further expand its bond target band


• BoJ will carry out flexible adjustments in market operations by making use of fund-supplying operations against pooled collateral.


• Expects market functions to improve ahead; market functions will improve by conducting nible market operations.


• Says it is still early days since the adjustment to yield bands made in December, BoJ needs more time to assess impact on market functions.


• Says it is unclear whether distortions in yield curve and the improvement in market functions are in place.


• Argues YCC is fully sustainable, widening band has made YCC more sustainable.


• says it will take time for market's yield curve formation under new policy operation to settle.


• Amended rules for funds-supplying operations to encourage yield curve formation consistent with market operation guidelines.


• Amended rules can lower long-term yields without affecting actual demand and supply in bond markets.


• Sees no problems with the BoJ's increased bond purchases, does not see specific risks to the recent increase in bond buying.


• He does not rule out negative rates under the fund-supplying operations.


• Says YCC does not have structural problem; says it is most appropriate to target the 10yr yield.


• Kuroda says will not consider any other option, when asked about targeting shorter maturities. 

RATES AND FOREX:

• Notes real interest rates have been decreasing, enhancing the impact of the BoJ's monetary easing.


• Says it is important for FX rates to move stably, reflecting fundamentals.


• Says he has no specific comments on FX levels, currency policy is the jurisdiction of the government

GUIDANCE:

• Will continue monetary easing to achieve sustainable and stable inflation.


• BoJ will not hesitate to ease monetary policy further if required.


• Today's policy decisions are not a change in the BoJ's monetary policy, like the one in December.


• Says financial market's expectations for a change in policy have been corrected today.


• Says no central bank anywhere tells the market ahead of time what it will do at the next policy meeting.

Analysis details (06:32)

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  RECAP: BoJ defied the increased speculation for a policy tweak and kept its policy settings unchanged with NIRP kept at -0.10% and the parameters of its YCC maintained at current levels. The central bank stuck with its forward guidance on rates and that it will continue large-scale JGB buying and make nimble responses for each maturity, while it also reiterated it will not hesitate to take additional easing measures as necessary. Furthermore, the central bank's projections was also dovish leaning as it cut Real GDP forecasts across the projection horizon and although it mostly increased its core CPI view, the estimates for Fiscal 2023 and 2024 both remained below 2% which is the BoJ's target and a level that could have paved the way for policy normalisation. You can recap on the rate decision, and main headlines here.
  


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  NOTE: Kuroda is outgoing, and there will be  a new Governor in April. A Reuters report outlines who the main candidates are to become next BoJ governor here.
  

18 Jan 2023 - 06:32- Fixed IncomeData- Source: Newswires