BOJ, YCC inspection and ETF buying method reform focus on alleviating the long-term war | Reuters

[Tokio, 15 de Reuters]- The Bank of Japan is expected to review asset purchase methods, such as Yield Curve Control (YCC) operations and Exchange Traded Funds (ETF), in the policy inspection presented at the decision meeting policy held on 18-19 … Although it shows the permissible fluctuation range of long-term interest rates and allows interest rate fluctuations within the range that does not affect the relaxation effect, and refrains from Buy ETFs when the market is calm, the purchase amount is large when volatility increases. that the main focus will be to increase it.

It is expected to continue to carry out persistent monetary easing towards price targets achieving both the recovery of market functions and an aggressive response to sudden changes in the market.

The implementation of the policy inspections was announced in December last year. The spread of the new coronavirus has increased the downward pressure on the economy, and from the awareness that it will take longer to reach the 2% price target, we analyzed the effects and side effects of the policies so far and discussed some policies. I decided to review the method.

In the policy inspection, we will not change the current framework of “quantitative and qualitative monetary easing with control of long and short-term interest rates (control of the yield curve)” for the judgment that it is working properly. In addition, the current framework framework, such as the 2% target price, the negative interest rate and the “overshoot commitment” to expand the monetary base until the year-on-year growth rate of the CPI (Consumer Price Index) The underlying stable exceeds 2%. What is formed is not subject to review.

The focus of this inspection will be the operation of YCC and the method of purchasing assets such as ETFs.

With respect to the YCC operation, the fluctuation range allowed by the Bank of Japan against the long-term interest rate guidance target of 0% is “approximately twice the plus or minus 0.1%” set by the president. Haruhiko Kuroda in July 2018. After keeping it, there is a possibility that the statement will specify a specific number like “0.2% top and bottom”.

So far, the standards have only been set by President Kuroda at the press conference, and there is merit that the BOJ’s intentions can be more easily communicated to the market by clearly stating them in the statement. However, there is a sense of caution within the Bank of Japan that showing specific figures will hamper flexible market adjustments.

While some have questioned the BOJ’s long-term interest rate stagnation in a very narrow range in the second half of last year, there is also a sense of caution that widening the allowable range will be perceived as a “regression in the flexibilization “. Masayoshi Amamiya said in a speech on the 8th, “Significant fluctuations in interest rates can have unintended consequences, but within a certain range, the government bond market works without compromising the effects of monetary easing. It can. have a positive effect on the undergraduate degree. “He suggested that interest rates could fluctuate within the range that does not harm the effects of easing to restore market function. By clearly expressing this attitude in the statement, there is more room to design a government bond purchase method of operation so that interest rates can rise and fall more easily.

On the other hand, the statement issued on the 19th will emphasize that the reduction of long and short-term interest rates is an important means as one of the additional relaxation measures in the event of an economic recession.

In his speech, Vice President Amemiya noted that “it is appropriate to be able to reduce long and short-term interest rates considering the potential impact on the financial intermediation function.” The Bank of Japan may modify the three-tier structure of current deposits to clarify the margin to reduce short-term and long-term interest rates. Also, when interest rates do drop, it appears that they will take steps to reduce spillovers in order to maintain their role as a financial intermediary.

However, although the new Crown has put downward pressure on some of the service industries, the current economy is still firm and long and short-term interest rates are unlikely to be lowered at this decision-making meeting. .

Regarding the purchase of ETFs, it has been noted that the BOJ will become the largest holder of Japanese shares and that it will have an adverse effect on market functions and corporate governance. The Bank of Japan will act if volatility rises rapidly and the real economy could be adversely affected if left unchecked, such as when the market was turbulent due to the rapid spread of the corona infection from March to April last year. It is expected to clarify that the purchase amount will be increased.

The Bank of Japan, but the upper limit of ETF purchase as part of the corresponding crown increased in the year 12 trillion yen, the purchase outlook of the year in principle have gone 6 trillion yen. The Bank of Japan has expressed support for eliminating 6 trillion yen in principle and leaving only the upper limit of 12 trillion yen. By doing so, it can be shown that the BOJ’s easing stance has not changed even after the policy inspection.

However, after showing in the inspection results that the risk premium, which expanded rapidly last spring, has stabilized during the high stock market, the statement will leave 6 trillion yen in principle, and will exceed 6 trillion yen if the market is tough. Some say that if it is clear that it is possible to buy at a rate, it will not be a step back from the easing stance.

The policy verification will be announced as the end of March approaches. The Bank of Japan is expected to pay close attention to market trends and ultimately decide on specific changes in purchasing methods.