BOJ admits the possibility of moving away from yield curve control policy in the future

Bank of Japan Governor Haruhiko Kuroda says that a change in monetary policy in Japan is possible, but in the future. For now, the Bank of Japan is sticking to its yield curve control (YCC) policy.

In his statement to parliament, Kuroda noted that the change would only be possible if the inflation target was reached, at the moment it is 2%.

Haruhiko Kuroda's second five-year term will end in the spring of 2023, probably until then the market can hold out in anticipation of an interest rate hike and a change in the Bank of Japan's policy outlook in general.

The Bank of Japan's commitment to yield curve control (YCC) policy, as well as statements that interest rates won’t rise for at least a couple more years, led to a sharp fall in the yen and the subsequent currency intervention by monetary authorities.

It’s worth noting that under the current course of loose monetary policy the level of short-term interest rates is -0.1%, and the yield of ten-year bonds is about zero.

According to the minutes of the Bank of Japan's September monetary policy meeting, officials are fully aware that inflationary pressure is real and loose monetary policy cannot prevent it. 

Some members of the Bank of Japan's policy board still believe that sticking to loose monetary policy is necessary, as the priority goals at the moment are to ensure decent wages and achieve the inflation target. However, more and more companies are reportedly raising prices, leading some board members to think that the course should be changed. Some are openly arguing for a change of course. One member of the Bank of Japan's policy board notes that in case the course changes, it’s important to inform the market how to act.

Japan's core inflation rate rose to 3% in early fall, the highest in eight years. And with the yen falling that much for the first time in 32 years, more and more factors are pushing the Bank of Japan to give up loose monetary policy.