The governor’s remarks come as the nation’s government bond yields continue to rise
[TOKYO] Bank of Japan (BOJ) governor Kazuo Ueda indicated he’s not too concerned about the country’s government bond yields ascending to the highest level since 2008, signalling he’s not planning any imminent action to counter the moves.
“My understanding is that the rising trend since last year reflects the market’s views on the economy and inflation, or shifts in interest rates overseas,” Ueda said on Wednesday (Mar 12) in response to questions in parliament. “There is no major gap between our views and the market’s.”
The remarks suggest that the BOJ is not likely to step into the bond market even after benchmark yields breached the key threshold of 1.5 per cent, reaching 1.578 per cent on Monday. The central bank ended its yield curve control programme last year, and Ueda has consistently expressed his view that the market should determine yield levels.
“One of the biggest factors driving long-term yields is market expectations regarding the outlook for short-term rates,” Ueda said. “It’s natural for the yields to move by reflecting those views.”
The governor’s remarks come as the nation’s government bond yields continue to rise. The 20-year bond yield hit its highest since 2008 on Wednesday morning, while yields on 30-year debt climbed to the highest since 2006. Selling pressure on bonds temporarily increased after Ueda spoke.
With his comments, Ueda joins other Japanese authorities who have expressed relative calm over the recent rise in bond yields. Finance Minister Katsunobu Kato on Tuesday said that there are both positive and negative effects from the moves.
The BOJ’s board gathers next week to set policy after lifting the benchmark rate to 0.5 per cent in January. While few economists expect a move this month, Ueda has consistently said authorities would raise borrowing costs if their economic forecasts are realised.
In a Bloomberg survey published on Wednesday, economists said they now anticipate the terminal rate in this cycle to reach 1.25 per cent. That’s up from 1 per cent in the previous survey and shows a stark shift from a year ago, when they saw it at 0.5 per cent.
Ueda’s remarks notwithstanding, the BOJ will keep a close eye on the bond market as it still holds about half of all outstanding government debt. BLOOMBERG
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