Kuroda Seen Succeeding on Curve Where Greenspan Struggled

  • Primary dealers raised yield forecasts after policy revamp
  • BOJ pledged to hold long-term yield at zero, steepen curve

Haruhiko Kuroda, governor of the Bank of Japan.

Photographer: Buddhika Weerasinghe/Bloomberg

Japan’s primary dealers are backing Haruhiko Kuroda to do what Alan Greenspan and Ben Bernanke couldn’t -- control long-term bond yields.

Yield forecasts among dealers surveyed by Bloomberg have risen in line with the goals revealed by the Bank of Japan governor on Sept. 21 to pin 10-year sovereign bond yields near zero and steepen the curve. The median estimates among the 13 respondents are for benchmark yields to rise to minus 0.05 percent at year-end, while those on 20-year debt climb to 0.3 percent. In a poll three weeks ago, they projected minus 0.15 percent and 0.23 percent respectively.

Kuroda’s targets for the yield curve take Japan’s monetary policy further into uncharted territory as he struggles to stoke inflation. While Greenspan and Bernanke never specifically targeted long-term yields when they headed the Federal Reserve, Greenspan called their failure to rise a “conundrum” when he increased overnight rates from 2004 to 2006. His successor Bernanke encountered the opposite problem in 2009 when long-term yields surged at the start of quantitative easing. Kuroda’s advantage lies in the size and flexibility of his asset purchase program.

“Barring a big external shock that pushes down yields globally, the BOJ should be able to control the yield curve,” said Kazuhiko Ogata, the Tokyo-based chief Japan economist at Credit Agricole SA, one of the 21 brokerages obliged to participate in government debt auctions.“If you take the BOJ at its word, the 10-year yield will move stably around zero, and policy makers probably want a spread with 20-year yields of about 50 basis points.”

For more on why the Bank of Japan is targeting the yield curve, click here.

Investors have signaled doubts about Kuroda’s chances of success, with questions still hanging about just how the central bank intends to implement its yield curve controls. Since the policy announcement last week, the 10-year yield retreated to a one-month low of minus 0.09 percent on Wednesday in Tokyo. It was little changed on Thursday at minus 0.08 percent.

The yield curve -- as measured by the spread between yields on two- and 30-year debt -- initially contracted to as little as 66 basis points by Sept. 23. It was at 75 1/2 basis points at the close of trade the day before the BOJ’s announcement.

More clarity should come Friday, when a statement is due detailing the central bank’s plans for asset purchases in the coming month.

Kuroda has expressed concern that too flat a curve threatens to undermine the BOJ’s efforts to spur the economy. While setting a target to keep the 10-year yield at current levels “around zero percent,” the central bank said it will maintain government bond purchases “more or less” at an annual pace of 80 trillion yen ($789 billion), but scrapped guidelines on which maturities to buy.

A core gauge of inflation declined 0.5 percent in July, the most since March 2013, the month before Kuroda introduced his stimulus program.

“It’s going to be a prolonged battle to reach the 2 percent inflation target, so they’ve adopted a policy framework that won’t be criticized as unsustainable,” said Souichi Takeyama, a rates strategist at SMBC Nikko Securities Inc. in Tokyo. “Now that the BOJ has increased flexibility, it’s that much more important to have close communication with the market.”

Primary Dealer10-Year Yield at Year-End10-Year Yield at End-March
20-Year Yield at Year-End





20-Year Yield at End-March





Barclays Securities Japan-0.1%-0.05%0.3%0.3%
Credit Agricole Securities Asia0%0%0.5%0.5%
Daiwa Securities-0.1%-0.1%0.3%0.3%
Deutsche Securities-0.05%-0.07%0.3%0.25%
JPMorgan Securities Japan-0.05%-0.05%0.3%0.3%
Merrill Lynch Japan Securities0%0%0.4%0.45%
Mitsubishi UFJ Morgan Stanley Securities-0.1%-0.1%0.3%0.3%
Mizuho Securities-0.05%-0.1%0.35%0.3%
Nomura Securities0%0%0.5%0.5%
Okasan Securities-0.15%-0.25%0.25%0.15%
SMBC Nikko Securities-0.05%-0.1%0.3%0.25%
Sumitomo Mitsui Banking Corp.0%0%0.25%0.25%
Tokai Tokyo Securities-0.1%-0.2%0.3%0.2%
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