BOJ Holds 10-Year JGB Yield Cap at 0.5 Pct

Tokyo, Jan. 18 (Jiji Press)--The Bank of Japan decided Wednesday to hold its recently raised cap on 10-year Japanese government bond yields steady at 0.5 pct, resisting upward pressure on interest rates. The decision was made by a unanimous vote at a meeting of the BOJ's Policy Board. The bank had seen the JGB yield limit, set as part of its yield curve control, breached repeatedly amid persistent bond selling from market players betting on a further rise in the cap. However, BOJ Governor Haruhiko Kuroda said at a press conference after the meeting, "We don't think there is a need to expand the allowable range of long-term interest rates further." Stressing the need to continue the bank's monetary easing measures, Kuroda said, "We're not yet in a situation in which we can achieve the 2 pct inflation target in a sustainable and stable way." "It will take some time for interest rates to become stable," Kuroda noted, suggesting that it would be premature to evaluate the effects of the range expansion. Although there are concerns about a possible increase again in upward pressure on interest rates amid persisting speculation about a policy revision by the BOJ, he stressed that its yield curve control policy is "quite sustainable." Just last month, the central bank stunned the market by tweaking its yield curve control. It decided to allow 10-year JGB yields to move between plus and minus 0.5 pct, against the previous tolerated range of plus and minus 0.25 pct. At the two-day meeting through Wednesday, the BOJ decided to keep unchanged its policy of guiding 10-year JGB yields around zero pct within the recently expanded range. Its short-term policy interest rate was also held steady at minus 0.1 pct. The BOJ's latest decision sparked government bond purchases, with the key 10-year JGB yield plunging to 0.360 pct at one point, as well as selling of the yen, sending the dollar briefly above 131 yen. Takahide Kiuchi of the Nomura Research Institute said that the decision by the BOJ sent a "message that it will curb rising interest rates by force through its operations." The BOJ also announced its latest Outlook for Economic Activity and Prices report, forecasting that the country's core consumer price index, excluding fresh food prices, will rise 3.0 pct in fiscal 2022, up from 2.9 pct projected in the previous October report. The core CPI growth forecast for fiscal 2023 stood at 1.6 pct, unchanged from the previous projection, and 1.8 pct for fiscal 2024, up from 1.6 pct, according to the latest quarterly report. The core CPI growth is "expected to decelerate toward the middle of fiscal 2023," as effects of moves to pass on higher import prices wane and government measures continue to curb energy-related prices, the BOJ said. Meanwhile, the bank revised down its fiscal 2022 outlook for the country's real gross domestic product growth to 1.9 pct from 2.0 pct. The GDP growth prediction was revised down to 1.7 pct from 1.9 pct for fiscal 2023 and to 1.1 pct from 1.5 pct for fiscal 2024. Also on Wednesday, the BOJ decided to expand fund provision to commercial financial institutions. Kuroda said that the expansion will help keep long-term interest rates low in a stable way. On the BOJ's move to step up its JGB purchases for curbing interest rates, the governor said, "We don't think growth in our JGB holdings would carry a special risk." END