BOJ to expand the band around Friday’s long-term rate target: Nikkei

TOKYO (Reuters) – The Bank of Japan is expected to expand a volatile bond at which it will allow long-term interest rates to move around their 0% target, Nikkei newspaper reported Thursday.

The move will be among measures announced by the BOJ on Friday to stabilize its major stimulus program, the Nikkei said, as COVID-19 pandemics are seen widening battle to the 2% inflation target his accomplishment.

Currently, the BOJ is allowing 10-year bond yields to rise and fall 0.2% each around its 0% target. It will expand that band and accept ups and downs of 0.25% each, the Nikkei said, not to mention any sources.

By allowing yields to fluctuate more, the BOJ will help reduce ultra-low interest rates and a flat yield curve impacting the profits of financial institutions, the paper said.

The dollar fell against the yen, Japanese government bonds (JGB) yields rose and Tokyo stock paid off earlier following a Nikkei report on expectations that the BOJ will pick up further yields.

“JGB production is likely to be under pressure. Markets could investigate whether the BOJ will increase 10-year yields to 0.25%, or even 0.3%, ”said Yuichi Kodama, chief economist, at the Meiji Yasuda Research Institute.

The BOJ does not normally comment during a two-day blackout set prior to its rate-setting meetings, when officials are prohibited from speaking to the media. The central bank will announce its monetary policy decision at the end of a two-day meeting on Friday.

At the review, the BOJ is also seen to be removing a promise to buy a trading stock (ETF) at an annual rate of 6 trillion yen ($ 55 billion), the Nikkei said, without citing sources.

In removing that guidance, the BOJ will stress its willingness to ramp up purchases only in times of market turmoil, the Nikkei said.

Under the control of a stated policy yield curve, the BOJ targets short-term interest rates at -0.1% and 10-year bond yields at around 0%. It also buys risky assets such as ETFs as part of efforts to burn economic growth and inflation.

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