Commentary on the Bank of Japan policy changes from PIMCO's Head of Portfolio Management in Japan, Tomoya Masanao
- The consensus expectation was a combination of some form of additional easing and a technical "tweak" to the QE
- Instead, the BOJ made a policy "regime shift" from base-money targeting to yield-curve targeting
- The BOJ from now on will no longer target a base-money increase at an annual pace of ¥80 trillion but will target two specific interest rates: the overnight rate on part of excess reserves and the yield on the 10-year JGB
- The average maturity target of seven to 12 years for the JGB purchase operation is now abolished; instead, the fixed-rate fund-supplying operation will be extended up to 10 years and will be used, along with the JGB purchasing, to control the yield curve
He goes on to ask: ...
- will the yield-curve targeting work better in helping the BOJ achieve its 2% inflation target?
- Not very likely, in our view
- Stealth tapering of the QE should help delay hitting the practical limit on the QE operation, but it still runs the risk of being viewed negatively in the markets
And:
- the sustainability of the risk-asset rally is not certain
- decision is evidence of its policy exhaustion
- The BOJ will likely remain super-accommodative but will no longer be able to take the lead: It is sneaking into the back seat
