TOKYO :One of Bank of Japan Governor Kazuo Ueda's biggest challenges will be to phase out a controversial yield curve control policy, which is criticised for distorting markets by keeping long-term interest rates low despite creeping inflation.While Ueda has stressed the BOJ will be in no rush to dial back st
TOKYO :One of Bank of Japan Governor Kazuo Ueda's biggest challenges will be to phase out a controversial yield curve control policy, which is criticised for distorting markets by keeping long-term interest rates low despite creeping inflation.
In doing so, the BOJ could soothe markets by pledging to buy as many bonds as needed to fend off an abrupt spike in yields. Another option would be to target shorter-duration bond yields such as the five-year zone, to allow the longer end of the curve to better reflect economic fundamentals. Many of them prefer to wait at least until the BOJ's October or December meetings to scrutinise corporate earnings and the degree of a global slowdown, for clues on whether Japan's wages and economy can continue to strengthen next year.Before tweaking the yield cap, the BOJ could drop more hints of a policy shift such as by modifying forward guidance.
While the wage outlook is crucial to the timing of a policy shift, the BOJ is already signalling that Japan's prolonged era of nascent wage growth may be ending.
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