In a turnout for Kuroda, the BOJ may scramble your asset purchase goal

TOKYO (Reuters) – The Bank of Japan may miss a numerical target for buying risky assets at Friday’s policy review, highlighting the rising cost of a long discount and marking a turning point for Governor Haruhiko Kuroda’s massive incentive program.

PHOTO FILE: Governor of Bank of Japan (BOJ) Governor Haruhiko Kuroda will attend a press conference at BOJ headquarters in Tokyo, Japan July 30, 2019. REUTERS / Kim Kyung-Hoon / Photo File

The central bank also seems to be clarifying the extent to which bond yields will be able to move away from its 0% target, and considering measures to address the negative interest rate side effects.

The accumulated cost of Kuroda’s eight-year test to burn inflation, while fighting economic headaches from the COVID-19 pandemic with a shrinking equipment package, has raised questions about the sustainability of the BOJ’s mitigation policy.

“The BOJ’s current framework is a snapshot of steps taken over the last eight years. It’s great to clean up some of them, ”said Shigenori Shiratsuka, a former BOJ chief executive.

“But that may be something too ambitious for the BOJ to take forward at the March inquiry. ”

BOJ review has drawn close market attention as global recovery hopes to push bond yields up in many economies including Japan, challenging BOJ efforts to boost 10-year yields at zero under its output loop control (YCC) policy.

The conclusions of his review will be announced after a two-day policy meeting that ends Friday, where the BOJ is expected to keep its interest rate targets unchanged.


With the strong criticism of buy-in pulls to sway markets, the BOJ buys futures-traded funds (ETFs) similar to frontier currency intervention: stepping in only when panic event triggers market turmoil, according to sources familiar with BOJ thinking.

That would mean watering down, or removing one of its two pledges on ETFs – to buy them at an annual rate of 6 trillion yen ($ 55 billion) and up to 12 trillion yen.

Sources say the BOJ will not want to give the impression that it is dialing a stimulus incentive even if it is tapering.

This is no easy task even for Kuroda who, as a former top Japanese currency reputable, was known for his skills in manipulating yen movements with verbal warnings.

The review will also discuss ways to bring life back to a restrained bond market led by BOJ. The challenge is to point to markets that will allow the BOJ to move yields more – but not rise too much and hurt a weak economy.

The controversial targets had led to mixed messages with Kuroda and his deputy, Masayoshi Amamiya, which left investors second-guessing BOJ’s intentions.

The BOJ has said that any changes it makes at the review will be better for its tools than a review of YCC.

“It is unlikely that the BOJ can produce a result that will have a significant impact on the economy and markets,” said Hirohide Yamaguchi, former deputy governor of BOJ.

“The review may be just a demonstration of a move that it is doing ‘something’ to cover the cost.”

($ 1 = 109.1000 yen)

Edited by Jacqueline Wong