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The Bank of Japan may consider targeting a shorter maturity than the current 10-year bond yield when it comes time to exit its ultra-easy policy, central bank Governor Haruhiko Kuroda said on Friday.

At this stage, however, it was premature to raise the BOJ’s interest rate targets or take steps to raise the yield curve, Kuroda told parliament.

“If the time comes to exit the ultra-loose policy and discuss an exit strategy, those steps could be discussed,” Kuroda said, when asked about the possibility of targeting shorter-duration bond yields under his policy. yield curve control (YCC).

“When 2 percent inflation is achieved, there will be several discussions about an exit that will be communicated to the markets. At this stage, however, it is appropriate to maintain the current YCC policy,” he said.

As part of efforts to push inflation to its 2 percent target, the BOJ is targeting short-term rates at 0.1 percent and 10-year bond yields around 0 percent under YCC.

While the policy has kept borrowing costs low for businesses, it has drawn criticism from commercial banks for flattening the yield curve and crushing the margins they make on loans.

The International Monetary Fund proposed on Friday that the BOJ consider additional measures to mitigate the impact on bank profits from a prolonged easing, such as targeting a shorter maturity than the current 10-year yield. read more

“The current policy is appropriate to keep the yield curve stable at low levels,” Kuroda said, when asked about the IMF proposal by an opposition lawmaker.

Kuroda also said that the expected increases in interest rates from the Federal Reserve were “very appropriate” to control inflation and ensure that the US economy continues to achieve strong growth.

“There were cases where US rate hikes caused yen weakness. But that is not always the case,” Kuroda said.

“I don’t think the Fed’s expected policy trajectory will have a negative impact on Japan’s economy or markets,” he added.

https://www.reuters.com/markets/rates-bonds/targeting-shorter-yield-among-options-ultra-easy-policy-exit-bojs-kuroda-2022-01-28/

Category: Japan

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