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Yield Curve Call Sparks BOJ Policy Doubts as Yen Struggles

A Bank of Japan member has called for an early tweak to the key yield curve control setting as the country’s currency continues to come under pressure

A view of signage outside the headquarters of Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo
A view of signage outside the headquarters of Bank of Japan in Tokyo. Photo: Reuters


Analysts were speculating that cracks might be finally showing in the Bank of Japan’s resolve to stick to its ultra-easy policy as the yen continues to weaken.

A Bank of Japan (BOJ) policymaker called for an early revision to its controversial yield curve control, a summary of opinions at the June meeting showed on Monday.

And while analysts see the call as reflecting only a minority view of the BOJ board, investors are now watching to see if similar views emerge in the near-term, potentially heralding a dramatic shift in policy.

The bank’s summary of opinions came as Japan’s top currency diplomat escalated his warning against falls in the yen on Monday, a signal to markets that authorities could intervene to slow the decline.


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“The bank should maintain the overall framework of monetary easing for the time being,” one of the nine board members was quoted as saying in a summary of opinions at the June meeting.

“That said, a revision to the treatment of YCC should be discussed at an early stage,” taking into account the need to prevent sharp fluctuations in interest rates in the future phase of an exit from current monetary policy, the member said.

It was the first time the BOJ summary showed a board member explicitly mentioning the need for an early debate of a tweak to YCC, which contrasts with Governor Kazuo Ueda’s remarks ruling out any imminent change in policy.

The yen rose 0.3% to 143.27 per dollar on Monday after the BOJ summary’s release, though it was not far from a more than seven-month low of 143.87 hit on Friday.

“Although one member called for change in YCC, we need to see if others including Ueda may follow suit, which would make it a big movement,” said Daisaku Ueno, chief currency strategist at MItsubishi UFJ Morgan Stanley Securities.

Under YCC, the BOJ guides short-term interest rates at -0.1% and the 10-year bond yield around zero as part of efforts to sustainably achieve its 2% inflation target.

The yen has come under renewed pressure in recent weeks as investors focused on the contrast between the BOJ’s ultra-dovish stance and hawkish central banks elsewhere.


Concern Over ‘Rapid’ Yen Fall

Some market players bet the central bank could tweak YCC, such as by widening the allowance band set around the 10-year yield target, as early as July to address market distortions caused by its huge bond buying.

YCC is also blamed by some analysts for causing an unwelcome yen fall that pushes up raw material import costs.

In a sign of renewed concern over the weakening yen, Japan’s top currency diplomat Masato Kanda warned on Monday that recent moves were “rapid and one-sided.”

“We have all options available and we are not ruling out any options,” Kanda, who is vice finance minister for international affairs, said when asked whether authorities stand ready to intervene in the market.

However, Kanda stopped short of saying Japan was ready to take “decisive action” – language he used shortly before Japan stepped into the currency market last year.

Finance Minister Shunichi Suzuki was also quoted by Japan’s Jiji news agency as saying on Monday that authorities will respond “appropriately” to any excessive currency moves.

The yen stood around 143 per dollar in Asia on Monday, well away from the 32-year low near 152 set last October when Japan last conducted a rare yen-buying intervention to stem the currency’s weakening.


  • Reuters with additional editing by Sean O’Meara


Read more:

Japan Finance Ministry on Alert as Weak Yen Causes Concern

Bank of Japan Chief Ueda Vows to Stick With Easy Policy

Yen Shoots up as Ueda Nominated as New Bank of Japan Chief



Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.


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