"BOJ, No Additional Policy Changes This Year"…Stable Trends in Stock and Forex Markets

Bloomberg Survey of 41 Economists
90% Say Low Chance of Revision This Year
Raise Long-Term Interest Rate Cap to 1%

As the Bank of Japan (BOJ) effectively raised the long-term interest rate cap to 1%, causing fluctuations in government bond yields, there are expectations that the Japanese monetary authorities will not introduce additional policies within this year. Experts believe that there is still time before the negative interest rate policy is abolished, and the Japanese stock and foreign exchange markets continue to maintain a stable trend without significant changes.

Bank of Japan
Photo by Yonhap News

On the 31st (local time), Bloomberg conducted a survey of 41 economists, with 90% of respondents answering that the BOJ is unlikely to make policy adjustments within the year. Experts analyzed that since the BOJ’s recent policy adjustment met market expectations anticipating changes to the Yield Curve Control (YCC) policy, no further changes are expected in the near term.

The period most likely for the BOJ to change its policy is projected to be April next year. Among all respondents, 26% expected policy changes in April next year, and 12% anticipated them in the third quarter of next year.

Furthermore, if the BOJ resumes policy adjustments next year, there is an analysis that the probability of abolishing the YCC policy and the negative interest rate policy is high. Since 2016, the BOJ has maintained short-term interest rates at -0.1% and conducted large-scale quantitative easing by unlimitedly purchasing government bonds to keep long-term government bonds moving within a certain range. In December last year, the BOJ raised the allowable fluctuation range for long-term government bond yields from 0.25% to 0.5%, and at the recent monetary policy meeting, it announced that it would tolerate interest rate changes up to the 1% level.

However, for the YCC policy and the negative interest rate policy to come to an end, stable inflation growth is expected to be supported. Yasunari Ueno, a quantitative economist at Mizuho Securities, stated, "For the negative interest rate policy to end, the BOJ must be confident that Japan’s inflation will stably maintain the target range of 2%. There are still many challenges to reach this point."

The financial market also expects that it will take time for the BOJ to shift to a tightening stance and is showing little impact from this policy change. The Nikkei 225 index recovered to the 33,000 yen level on the 31st after a month. As of 10:04 a.m. on that day, the Nikkei 225 was trading at 33,244 yen. The yen weakened, surpassing 142 yen per dollar. This is a markedly different pattern from last December when the yen strengthened, rising to the 120 yen level.

The Nihon Keizai Shimbun explained, "The market expects the BOJ’s easing policy to continue and is not shaken by this policy adjustment. Rather, stock prices are rising as the Japanese economy is expected to escape deflation and companies are expected to record favorable earnings."

However, following a sharp rise in the 10-year Japanese government bond yield the previous day, the BOJ conducted a temporary bond purchase for the first time in about five months. In the Tokyo financial market, the 10-year bond yield surged to 0.605% at one point during the day, marking the highest level in about nine years since June 2014. According to Kyodo News, the financial institutions’ bid size at that time was 872.4 billion yen, of which the BOJ won 300.2 billion yen in government bonds.

This content was produced with the assistance of AI translation services.