March 22, 2017 / 6:37 AM / 8 months ago

BOJ members hose down speculation of bond yield hike

TOKYO/SHIZUOKA, Japan (Reuters) - Bank of Japan board member Yukitoshi Funo on Wednesday joined other policymakers in hosing down speculation of a near-term withdrawal of the central bank’s massive monetary stimulus, saying it was premature to consider raising the BOJ’s bond yield target.

FILE PHOTO: A man runs past the Bank of Japan (BOJ) building in Tokyo, Japan, July 29, 2016. REUTERS/Kim Kyung-Hoon/File Photo

While offering an optimistic view on Japan’s economic prospects, the former Toyota executive said it was uncertain whether companies would raise wages to help accelerate inflation to the BOJ’s 2 percent inflation target.

“Inflation is still low compared with our target. We’re not in a condition to consider shifting monetary policy, such as by adjusting our yield target,” Funo told reporters after meeting business leaders in Shizuoka, eastern Japan.

Funo’s comments follow the central bank’s minutes for its January meeting released on Wednesday, which showed some of the board’s nine members rejected suggestions the BOJ should raise its 10-year government bond yield target to match expected gains in Treasury yields.

These members said the BOJ should focus solely on meeting its 2 percent inflation target, a difficult task due to worries about overseas economies and inflation expectations.

“Although some market participants speculated that the Bank might consider raising the target level of the long-term interest rate in response to such factors as a rise in the U.S. long-term interest rates, its monetary policy decisions should be made solely based on the viewpoint of aiming to achieve the 2 percent price stability target,” some members said.

The BOJ does not identify board members in the minutes of its policy meetings.

At the Jan. 30-31 policy meeting, the BOJ raised its growth projections but warned that prospects for hitting its 2 percent inflation target remained uncertain.

The BOJ also maintained its pledge to guide short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent.

Funo has voted with the majority of the board including a decision in September to shift the BOJ’s policy framework to one targeting interest rates from the pace of money printing.

BOJ Governor Haruhiko Kuroda has said earlier this month that an uptick in inflation toward 1 percent won’t immediately prompt an interest rate hike.

NO AUTOMATIC TRIGGER

Many traders and economists expect Treasury yields to rise this year as the Federal Reserve raises interest rates.

This tends to also push up Japanese government bond yields, which could make it more difficult for the BOJ to control the shape of the yield, some economists say.

Other economists argue that Japanese bond yields will rise on their own as domestic inflation starts to pick up, which will also put pressure on the BOJ’s 10-year yield target.

Funo warns Japanese firms may remain cautious about raising wages, which means consumer inflation may not hit 2 percent before Kuroda’s term ends in April next year.

He declined to elaborate on the conditions that must be met before the BOJ considers withdrawing stimulus, saying they would vary depending on economic circumstances at the time.

“There’s no set conditions that would automatically trigger (a hike in the yield target),” he said.

Editing by Chang-Ran Kim and Sam Holmes

Our Standards:The Thomson Reuters Trust Principles.
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