Bank of Japan Signals Acceptance of Higher Rates, Bond Yields Soar
The Bank of Japan's recent announcement had significant effects on the Japanese government bond yields and Tokyo stocks.
The bank indicated its willingness to tolerate higher interest rates amidst increasing inflation. On Friday, it stated that the 0.5% cap on the 10-year government bond yield should be seen as a suggestion rather than a strict limit.
As a result of the announcement, the yield on the 10-year bond briefly surged to 0.575%, the highest level since September 2014, before settling at 0.54%. This led to a rise in the value of the yen, with investors interpreting the move as a de-facto interest-rate increase.
The Nikkei Stock Average experienced fluctuations, initially falling over 2% but recovering most of its losses to finish down 0.4%. Bank shares, on the other hand, surged due to the potential to charge higher interest rates on loans and achieve better yields from bonds and investments.
Despite the adjustments, the Bank of Japan did not officially change any rates, keeping short-term interest rates at minus 0.1%. However, it introduced new language regarding the 0.5% cap, viewing it as a reference rather than an inflexible limit in market operations. Additionally, the bank pledged to purchase Japanese government bonds at a 1% yield daily, effectively setting a new hard cap for the 10-year yield.
Investors had anticipated the Bank of Japan to lift its 10-year bond yield cap or eliminate it completely. Many commercial banks had expressed difficulties in generating profits when short-term and long-term rates were maintained near zero.
Consumer-price growth in Japan had remained above the bank’s 2% target due to higher costs of imported energy and food. The bank observed rising inflation expectations and a higher-than-expected inflation rate in April, allowing for greater flexibility in setting the government-bond yield cap.
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BOJ Governor Kazuo Ueda emphasized the bank’s cautious approach to premature rate increases to avoid a return to near-zero inflation or deflation experienced over the past quarter-century.
The decision by the Bank of Japan was not unanimous, with policy board member Toyoaki Nakamura dissenting. He expressed concerns about taking action that could impact corporate earnings without sufficient data.
Alexander Stefanov
Reporter at CoinsPress
Alex is an experienced finance journalist and a cryptocurrency and blockchain enthusiast. With over five years of experience covering the industry, he deeply understands the complex and constantly evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His passionate approach allows him to break down complex ideas into accessible and insightful content. Follow up on his content to be up to date with the most important trends and topics - stay ahead of the curve with CoinsPress.
