The Bank of Japan will raise its inflation forecast and adjust the ceiling on yields
The Bank of Japan is likely to raise its inflation forecast and discuss further changes to bond yield controls at its policy meeting on Tuesday, as markets expect this to be one of the few levers it has left.
In early trading on Tuesday, the yield on 10-year Japanese bonds rose to a 10-year high of 0.955%.
The Nikkei newspaper reported overnight that the monetary authorities of Japan (JPN) are considering widening the range of 10-year government bond yields to more than 1 percent. The yen jumped 0.5% against the dollar after the announcement.
While any such move could reduce the need for the BOJ to step up its bond purchases, it would also cement market expectations of a near-term end to YCC and negative interest rates, analysts said.
Masahiro Nakai, interest rate strategist at SMBC Nikko Securities, said: "Adjusting the bond-buying guidance will be the final step in the YCC revision process. The market focus will shift to the timing of the exit from negative rates and subsequent rate hikes."
The BOJ is widely expected to keep its 10-year yield target at 0% and short-term interest rates at -0.1%.
In its new quarterly economic forecasts, the BOJ is likely to raise its inflation forecasts to show inflation at or above its 2 per cent target this year and next. But inflation is expected to slow in 2025 because of weak economic growth and uncertainty over wage negotiations in Japan next year.
Nearly two-thirds of economists polled by Reuters expect the BOJ to end negative interest rates next year.
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