As the clock counts down to the Bank of Japan’s (BOJ) policy announcement on Tuesday next week, officials are looking for ways to keep their stimulus program sustainable while reducing the harm it causes in markets and on the profitability of commercial banks.
A series of recent media reports suggest that the gathering could deliver anything from allowing for a more natural rise in long-term interest rates to no change and a mere assurance that policymakers are considering the side effects.
The speculation fueled a slide in 10-year Japanese government bond (JGB) futures during US trading on Friday, setting the scene for yields to move higher in Tokyo today.
Bloomberg’s reporting indicates that officials are focused on coming up with adjustments to mitigate harm without doing anything resembling a move to policy normalization.
At this stage, there is little likelihood of a significant change on Tuesday next week to yield-curve control or asset-purchase settings, said officials involved in discussions, who asked not to be identified because the talks are private.
Some officials said there is no fundamental solution to side effects hurting commercial banks.
The dilemma for Bank of Japan Governor Haruhiko Kuroda is that even as cries to change policy grow louder, persistently weak inflation dictates the need to maintain stimulus.
Winding it back would boost the yen, further undermining efforts to spur higher prices, while also hitting Japanese exporters.
Kuroda on Saturday stuck to his standard playbook, declining to comment on the speculation.
“I know absolutely nothing about the basis for those reports,” Kuroda said in Buenos Aires, where he was attending the meeting of finance ministers and central bank governors of the world’s leading 20 economies.
It would be inappropriate to make remarks on the subject given the proximity of the Bank of Japan meeting, he said, adding that any policy decision would require sufficient discussion about prices and the state of the economy.
According to a report from Reuters, ideas to mitigate policy harm include tweaking the yield-curve control program to allow for a more natural rise in long-term interest rates, and operational changes to the way the central bank buys JGBs and exchange-traded funds.
The report said discussions were preliminary and outcomes would be dependent on updated inflation forecasts from board members.
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