BoJ raises ceiling for JBG yields but cuts medium-term inflation forecasts

Aug 02, 2018, 10:55
BoJ raises ceiling for JBG yields but cuts medium-term inflation forecasts

Kuroda's now equipped for a more drawn-out campaign to generate 2 percent price gains, a goal the central bank forecasts will take even longer than it previously thought to achieve.

Such cost-sensitive households are discouraging companies from raising price hikes, particularly those in the retail, service, hotel and restaurant industries, the BOJ said.

BOJ Gov. Haruhiko Kuroda, speaking to reporters after the policy meeting, said the central bank would allow long-term yields to move up and down 0.2 percentage point each from its zero percent target to improve functions in the government bond market. That's the lowest in more than a week.

The Australian dollar traded up 0.3 percent at $0.7430.

The yen climbed 0.1 percent to 110.92 per dollar from a more than six month trough of 113.15 touched earlier in July.

MSCI's all-country world stock index .MIWD00000PUS fell 0.37 percent on weakness in the so-called U.S. FAANG group: Facebook FB.O , Amazon.com AMZN.O , Apple AAPL.O , Netflix NFLX.O and Google parent Alphabet GOOGL.O . Japan's currency had strengthened leading into the meeting. The benchmark 10-year Japanese government bond dropped five basis points after the announcement.

"It has become clear that the tweaks does not involve policy exits or interest rate hikes". And it will continue to buy government bonds so that the outstanding balance will increase at an annual pace of about 80 trillion yen, or 700 billion dollars.

Meanwhile, concerns have been mounting over the negative side effects of the easing policies.

The policymakers said in their statement that "the yield may move upward and downward to some extent mainly depending on developments in economic activity and prices". The British pound has already priced the move, David Riley, chief investment strategist at BlueBay Asset Management, said, adding: "I think they will do it but it will be one and done".

The Federal Reserve is next in line to announce policy on Wednesday.

The benchmark Nikkei 225 index ended down 0.74 percent, or 167.91 points, at 22,544.84, while the broader Topix index slipped 0.43 percent, or 7.61 points, to 1,768.15. Likewise, the projection for fiscal 2019 was lowered to 1.5 percent from 1.8 percent and that for 2020 to 1.6 percent from 1.8 percent.

The new forecasts show the BOJ's struggle to stoke inflation.

The Japanese yen remained under pressure after the BOJ promised to keep rates low for an extended period of time, putting the central bank at odds with those of other economies that are looking to raise interest rates.

"They tried their best to avoid the perception of tapering or normalisation by introducing the forward guidance", said Nagai. The BOJ decision failed to offer a significant boost to equities, however.

The slight adjustment was seen as somewhat of a letdown after earlier reports that the central bank could modify policy to make its program more sustainable. It cited factors such as rising numbers of women and seniors entering the workplace, which has weighed on wages.

He added that the BOJ remains committed to keeping policy highly accommodative in an attempt to reach the two-percent inflation target.

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