At the post-meeting press conference, BoJ Governor Kazuo Ueda explained the details of the changes on monetary policy announced today. That includes explaining the decision to buy 10-year JGB yields at 1% in fixed-rate operations, an increase from the previous rate of 0.5%.
“We will not tolerate an increase in the 10-year bond yield above 1% and will step in if it does,” Ueda emphasized. While yield moves between 0.5% and 1%, BoJ will monitor the yield level, pace of change, and speed, and conduct various market operations to counter any excessive upward pressure on long-term interest rates.
He added, “We don’t expect the yield to move up to 1%, but have set this cap as a pre-emptive measure.”
Turning to inflation, Ueda confessed to underestimating the upward pressure on prices, leading to a significant upward revision of the inflation forecast for the current fiscal year. He noted that many board members perceive risks as skewed to the upside amid high uncertainty over the outlook.
Speaking on the Yield Curve Control (YCC), Ueda warned,”It would be pretty tough to deal with upside (inflation) risks once they materialise”. Given the current stability in the bond market and high uncertainty over the outlook, he termed this as a fitting moment to adjust the policy framework.
But Ueda also reiterated the bank’s unchanged view on the significant distance to achieving their price target as a trend and the appropriateness of maintaining an easy monetary policy. “As for what we will do ahead, if inflation overshoots, we will respond appropriately,” he assured.
