BOJ Allows Greater JGB Yield Fluctuations

Tokyo, March 19 (Jiji Press)--The Bank of Japan said Friday it will allow the 10-year Japanese government bond yield to fluctuate between around plus and minus 0.25 pct. The decision means that the central bank will expand its tolerated range of JGB yield fluctuations. Previously, Governor Haruhiko Kuroda and other BOJ policymakers had said the bank tolerated yield swings to around plus and minus 0.2 pct. The BOJ guides the key 10-year JGB yield around zero pct under its monetary policy. Friday's move signaled that the bank attaches more importance to market functions while curbing what it sees as an excessive rise in interest rates. The bank announced the decision as part of measures to make its unorthodox monetary policy sustainable, after its board reviewed the policy at a two-day meeting. As part of the measures, the BOJ abolished the annual targets for its purchases of exchange-traded funds and real estate investment trusts, a decision aimed at allowing it to reduce such purchases when market conditions improve. The central bank previously had targets of purchasing 6 trillion yen in ETFs and 90 billion yen in REITs a year. The ETF purchases have been strongly criticized for distorting stock prices. The BOJ will maintain its upper limits of 12 trillion yen in ETFs and 180 billion yen in REITs even after the COVID-19 pandemic is contained. "We have no intention at all to reduce ETF purchases," Kuroda told a news conference after the monetary policy meeting. The BOJ will focus its purchases of ETFs to only those linked to the TOPIX index of all stocks listed on the Tokyo Stock Exchange's first section, while stopping buying those linked to the 225-issue Nikkei average. As a result, the key stock average plunged on Friday. The BOJ also said it will establish an interest scheme that mitigates the negative side effects of prolonged large-scale monetary easing measures. Under the "Interest Scheme to Promote Lending", interest paid by the BOJ to commercial banks will be linked to the short-term policy rate, currently set at minus 0.1 pct. When the rate is lowered, interest paid to commercial banks will rise. The measure is designed to cushion the impact on banks' profitability of possible cuts in interest rates, making it easier for the central bank to lower rates without hesitation. "Cutting short- and long-term interest rates is an important option as a nimble and effective additional easing measure," the central bank said in a statement following the meeting. "If necessary, we'll push down interest rates deeper into negative territory without hesitation," Kuroda said. END