BOJ members rejected bond yield target increase: minutes

March 22, 2017

By Stanley White

TOKYO (Reuters) – Bank of Japan board members rejected suggestions the central bank should raise its 10-year government bond yield target to match expected gains in Treasury yields, minutes of their January monetary policy meeting showed on Wednesday.

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

“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.

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.

According to the minutes, one BOJ member shared this view and argued that yields are rising due to an improving Japanese economy and that the central bank should look for ways to reduce its debt purchases.

Most members, however, agreed that risks to the economy and price expectations are tilted to the downside and achieving 2 percent inflation remains a difficult task, the minutes showed.

After a subsequent policy meeting that ended March 16, Governor Haruhiko Kuroda echoed this sentiment at a press conference by hosing down speculation of a rate hike.

(Editing by Chang-Ran Kim; Editing by Sam Holmes)

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