Bank of Japan Governor Kazuo Ueda said on Tuesday that the central bank’s basic stance is to allow market forces to determine long-term interest rates while maintaining a gradual reduction of its massive bond purchases.
Deputy Governor Ryozo Himino also said in a seminar on Tuesday that the Bank of Japan would balance the need to allow market forces to push long-term interest rates higher while working to avoid sudden spikes. These statements increase the likelihood that the nine members at the policy meeting to be held from June 13 to 14 will discuss whether to provide clearer guidance on how the Bank of Japan will reduce its massive bond purchases.
At a seminar in Tokyo, Deputy Governor Himino said, “It is desirable for markets to determine long-term interest rates.” He also stated, “On the other hand, the Bank of Japan has been deeply involved in the bond market until very recently, and our presence is still very large. We need to avoid causing any unintended movements in the market.”
Until the termination of the yield curve control policy last March, the Bank of Japan was buying massive amounts of government bonds to cap the 10-year bond yield at zero. With the abandonment of this policy, the Bank of Japan will eventually reduce its massive bond purchases.
A series of recent hawkish comments from Bank of Japan policymakers, and the unscheduled reduction in bond purchases by the Bank of Japan on May 13, have left traders on alert for the possibility of further cuts. Rising market expectations that the Bank of Japan will decide on a full-scale plan to reduce bond purchases at next week’s meeting have pushed the yield on 10-year Japanese government bonds to a 13-year high of 1.1% on Thursday.
