Market Analysis

BoJ Governor Kuroda Spells It Out: YCC

Bank of Japan (BoJ) Governor Haruhiko Kuroda’s interview with Bloomberg at Jackson Hole was quite revealing. Kuroda acknowledged that he thinks Japan’s current rate of 4 per cent growth is unsutainable and that, whatever the Fed and the European Central Bank (ECB) do in coming months on monetary policy, Japan’s continued lack of inflation necessitates the BoJ sticking to its ultra-accommodative stance. Yield Curve Control (YCC), where the BoJ purchases Japanese Government Bonds in amounts deem necessary to keep yields at a specified level, will continue. For the 10-year JGB that means close to zero per cent. And while acknowledging that the BoJ already owns 40 per cent of the free float of JGBs, Kuroda stressed that meant 60 per cent was still out there. In fact the BoJ Governor made the point that the Japanese central bank gets more bang for every purchase of JGBs, as it pursues its YCC policy, as the size of the remaining pool of JGBS shrinks.

While Kuroda made no mention of the yen (USDJPY, EURJPY) traders may draw their own conclusions about its prospects given the BoJ Governor’s lengthy explanation of the Bank of Japan’s current and continuing monetary policy stance.

Written by Neal Kimberley, External Currency Analyst.