{"id":6907,"date":"2023-10-30T02:32:07","date_gmt":"2023-10-30T02:32:07","guid":{"rendered":"https:\/\/infundpros.com\/business\/weak-yen-and-soaring-yields-put-pressure-on-bank-of-japan\/"},"modified":"2023-10-30T02:32:07","modified_gmt":"2023-10-30T02:32:07","slug":"weak-yen-and-soaring-yields-put-pressure-on-bank-of-japan","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=6907","title":{"rendered":"Weak yen and soaring yields put pressure on Bank of Japan"},"content":{"rendered":"<div>\n<p>Unlock the Editor\u2019s Digest for free<\/p>\n<p class=\"article__content-sign-up-topic-description\"><span>Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.<\/span><\/p>\n<p><iframe class=\"article__content-sign-up-iframe close\" scrolling=\"no\" id=\"signUpIframe\" data-prev-url=\"\/register\/in-article-sign-up?ft-content-uuid=8168a759-e33d-4033-b6b9-f47e13feb01d\"><\/iframe><\/div>\n<div id=\"article-body\">\n<p>Expectations are rising that Japan\u2019s central bank will relax its grip on the bond market this week as the yen tests a 33-year low and government bond yields touch the highest levels in a decade.<\/p>\n<p>But investors\u2019 bigger focus may be whether Bank of Japan governor Kazuo Ueda will offer crucial signals on inflationary trends that could pave the way for Japan to end the world\u2019s last negative interest rates.<\/p>\n<p>The yield on the benchmark 10-year Japanese government bond hit 0.89 per cent last week, the highest since July 2013. As a result, the BoJ is widely anticipated to revise \u2014 for the third time in 12 months \u2014 its unconventional \u201cyield curve control\u201d policy of buying government bonds to hold yields below a fixed level.<\/p>\n<p>\u201cIt feels like the market is anticipating a modification to yield curve control and is starting to price that already,\u201d said Jim Leaviss, chief investment officer for public fixed income at M&amp;G.<\/p>\n<p>The BoJ last revised the band within which 10-year JGB yields are allowed to trade in July. UBS now expects the bank to widen the band further on Tuesday, to 1.5 per cent from 1 per cent, and expects the 10-year JGB target yield of zero to be raised to about 0.5 per cent.<\/p>\n<p>Barclays expects the BoJ to scrap yield curve control entirely on Tuesday.<\/p>\n<p>However Goldman Sachs, Nomura and Morgan Stanley MUFG say the central bank is likely to stick to its current monetary policy framework.\u00a0<\/p>\n<p>The BoJ has been the only major central bank not to raise interest rates over the past two years, keeping its policy rate at minus 0.1 per cent despite 18 months of above-target inflation.<\/p>\n<p>But the growing gap between borrowing costs in Japan and the US and Europe, as 10-year US Treasury yields surged to their highest levels in 16 years, has put pressure on the BoJ to tighten policy as the yen weakens.<\/p>\n<figure class=\"n-content-image n-content-image--full\"><picture><source media=\"(min-width: 700px)\"  width=\"1400\" height=\"1000\"><\/source><source media=\"(max-width: 490px)\"  width=\"600\" height=\"800\"><\/source><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/infundpros.com\/wp-content\/uploads\/2023\/10\/https:\/\/d6c748xw2pzm8.cloudfront.net\/prod\/133b9d70-7386-11ee-be9b-a319144c43d0-standard.pn.png\" alt=\"Line chart of \u00a5 per $ (inverted scale) showing Yen falls to lowest level in a year\" data-image-type=\"graphic\" width=\"1400\" height=\"1000\"><\/picture><\/figure>\n<p>The yen weakened past \u00a5150 against the dollar last week, raising concerns about inflation as the cost of imported goods rises.\u00a0The \u00a5150 level has previously prompted currency intervention by Japanese authorities.<\/p>\n<p>Although the yen has stabilised, currency traders see that as temporary and predict more severe tests if the BoJ does nothing following its two-day meeting on Monday and Tuesday, or makes only a cosmetic tweak to yield curve control.<\/p>\n<p>Forex analysts said the Japanese government might be resigned to the idea that \u00a5152-\u00a5153 is a fair level against the dollar. The widening differential between Japanese and US interest rates means intervention is likely to be less effective than in 2022.<\/p>\n<p>Mid-October comments by the IMF, which said it saw no factors to justify intervention, add to a belief in markets that the \u00a5150 level no longer represents a \u201cline in the sand\u201d for Japan, even as the weaker yen keeps inflation above the BoJ\u2019s target rate of 2 per cent.<\/p>\n<p>The central bank has argued that the main factor pushing up prices in Japan has been the rise in imported costs and that it needs to wait for more sustainable signs of wage growth, to ensure that the economy does not fall back into decades of deflation.<\/p>\n<p>In a speech in September, Ueda noted that wage growth was starting to have an impact on prices. Economists are paying attention to whether Ueda will acknowledge a stronger correlation between wages and prices.<\/p>\n<p>\u201cEven if the BoJ did not make any move this time, it will not be surprising if it started to deliver hawkish messages to prepare the public for a future rate hike,\u201d UBS economist Masamichi Adachi said.\u00a0<\/p>\n<figure class=\"n-content-image n-content-image--full\"><picture><source media=\"(min-width: 700px)\"  width=\"1400\" height=\"1000\"><\/source><source media=\"(max-width: 490px)\"  width=\"600\" height=\"800\"><\/source><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/infundpros.com\/wp-content\/uploads\/2023\/10\/https:\/\/d6c748xw2pzm8.cloudfront.net\/prod\/8fda7ba0-74bf-11ee-9dca-57c1c332f858-standard.pn.png\" alt=\"Line chart of 10-year JGB yield (%) showing Japanese government bond yields surge ahead of BoJ meeting\" data-image-type=\"graphic\" width=\"1400\" height=\"1000\"><\/picture><\/figure>\n<p>Japan\u2019s core inflation in September fell below 3 per cent for the first time in more than a year on the back of lower imported fuel prices. Stripping out energy and fresh food prices showed inflation also slowed to 4.2 per cent from the previous month\u2019s 4.3 per cent.<\/p>\n<p>Still, some economists warn that Japan\u2019s above-target inflation could be stickier than the BoJ is forecasting. In October, the Japanese Trade Union Confederation said it was seeking bigger wage increases during next year\u2019s negotiations. Prime Minister Fumio Kishida has also pledged to raise minimum wages from \u00a51,000 an hour to \u00a51,500 by the mid-2030s.<\/p>\n<p>Investors around the world watch Japanese bond yields closely because Japanese institutions are some of the biggest owners of US and European debt. More attractive returns at home could trigger a wave of selling in other bond markets.<\/p>\n<p>\u201cWe think scrapping the YCC could trigger Japanese investors, but the more important driver is likely to be when the BoJ terminates the negative interest rates and starts raising short-term policy rates,\u201d said Yusuke Miyairi, an economist at Nomura.\u00a0<\/p>\n<p>\u201cThe level of JGB yields is still not attractive enough for them to repatriate their capital from overseas into Japan,\u201d he added.<\/p>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.ft.com\/content\/8168a759-e33d-4033-b6b9-f47e13feb01d\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Unlock the Editor\u2019s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter. Expectations are&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22],"tags":[],"class_list":{"0":"post-6907","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-business"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Weak yen and soaring yields put pressure on Bank of Japan | inFundPros<\/title>\n<meta name=\"description\" content=\"Unlock the Editor\u2019s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Expectations are rising that\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/infundpros.com\/?p=6907\" \/>\n<meta property=\"og:locale\" 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