Stable markets and resilient domestic demand could help the Bank of Japan withst...
TOKYO - Stable markets and resilient domestic demand could help the Bank of Japan withstand pressure to expand an already massive stimulus program when policymakers meet next week in the wake of the European Central Bank’s monetary loosening.
Running short of ammunition to ease further, BOJ policymakers, however, want to keep their powder dry for as long as possible in case Japan’s economy runs into greater trouble. But with global uncertainties heightening and the fallout from the bitter trade war broadening, it may be only a matter of time before the BOJ ramps up stimulus, analysts say.
Under the policy, dubbed yield curve control , the BOJ guides short-term rates towards -0.1% and the 10-year government bond yield to around 0%. It also buys government bonds and risky assets in a bid to achieve its elusive 2% inflation target. “The ECB and the Fed are in deep easing mode. To prevent the yen from rising, the BOJ needs to keep alive market expectations that it, too, will ramp up stimulus fairly soon,” said Masaaki Kanno, chief economist at Sony Financial Holdings.Market expectations of imminent easing grew after the BOJ pledged in July to act pre-emptively “without hesitation” against risks that could knock the economy off the path toward achieving its 2% inflation target.
The YCC policy was introduced partly to prevent the yield curve from flattening too much, as excessive declines in long- and super long yields will erode profit margins of financial institutions.
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