Bank of Japan’s 'Technical' Policy Change Is Anything But
The messy compromise can’t mask the obvious, which is that central banks are retreating from long-held policies of manipulating yields lower.
BOJ Governor Haruhiko Kuroda faces a new reality.
Photographer: Yuya Yamamoto/Bloomberg via Getty Images
The Bank of Japan’s surprise decision to increase the upper bound of its target for 10-year Japanese government bond yields to 0.5% from 0.25% was presented as another case of Governor Haruhiko Kuroda, who has been in the post for almost a decade, catching the market off guard. He presented the change in almost entirely technical terms. The central bank thinks inflation rates will go down again, so it wasn’t abandoning a policy of yield-curve control, Kuroda said. All the move is designed to do is improve the functioning of the fixed-income market. Indeed, there are days when 10-year bonds don’t trade at all.
Quite how this would happen is unclear. It announced at the same time that the BOJ would increase purchases of so-called JGBs from 7.3 trillion yen ($55.2 billion) to 9 trillion yen, which would seem more likely to sap liquidity further. Still, I really don’t know what these numbers mean. After all, a central bank can’t simultaneously pursue price and quantity targets.