Bank of Japan Monetary Policy Statement: Changes language around 1% 10year JGB cap

<p>BOJ October 30 / 31 Monetary Policy Board meeting decision – no extension of the cap to 1.5% but instead formalised the 1% cap.</p><ul><li>
Keeps short-term interest rate target at -0.1%</li><li>
Keeps 10-year JGB yield target around 0%</li><li>
Widens reference range to 1.0% point up and down each around its
10-year JGB yield target vs previous 0.5% point</li><li>
Flexibly increase JGB buying, fixed-rate operations and collateral
fund-supply operations</li></ul><ul><li>
Changes language around 1.0% 10-year JGB yield cap</li><li>
Decides to keep yield target but make 1% a reference cap</li><li>
Will guide market operations nimbly</li><li>
Will regard upper bound of 1% for 10-year JGB yield as reference in
its market ops</li><li>
Will determine offer rate for fixed-rate JGB buying ops each time,
taking account market rates and other factors</li><li>
Decides to make YCC more flexible</li><li>
Japan's inflation outlook overshooting but due largely to prolonged
rises in import costs</li></ul><ul><li>
Wages, prices must strengthen in virtuous cycle</li><li>
BOJ will patiently continue monetary easing under YCC to support
economic activity, create environment where wages rise more</li><li>
Appropriate to make YCC more flexible given very high uncertainty
over economy, markets</li><li>
Strictly capping long-term rate with fixed-rate purchase operation at
1% will have strong positive effects but could also entail large side
effects</li><li>
As such, boj decided to conduct YCC mainly through large-scale JGB
buying and nimble market operations</li><li>
BOJ makes no change to its forward guidance</li></ul><p>Inflation forecasts boosted:</p><ul><li>
Board's core CPI fiscal 2023 median forecast at +2.8% vs +2.5% in
July</li><li>
Board's core CPI fiscal 2024 median forecast at +2.8% vs +1.9% in
July</li><li>
Board's core CPI fiscal 2025 median forecast at +1.7% vs +1.6% in
July</li></ul><ul><li>
Board's real GDP fiscal 2023 median forecast at +2.0% vs +1.3% in
July</li><li>
Board's real GDP fiscal 2024 median forecast at +1.0% vs +1.2% in
July</li><li>
Board's real GDP fiscal 2025 median forecast at +1.0% vs +1.0% in
July</li></ul><p align="left">
BOJ quarterly report:</p><ul><li>
Japan's economy likely to continue recovering moderately</li><li>
Inflation likely to slow, then re-accelerate as wages rise, inflation
expectations heighten</li><li>
Uncertainty over Japan's economic, price outlook very high</li><li>
Must be vigilant to financial, fx market moves and their impact on
Japan's economy, prices</li></ul><p align="left">
BOJ quarterly report on risks:
</p><ul><li>
Uncertainty over Japan's economy, prices is extremely high</li><li>
Need to closely watch financial, currency market moves, their impact
on Japan's economy, prices</li><li>
Risks to price outlook skewed to upside in fy2023</li><li>
Must closely watch whether favourable cycle of wage growth, prices
will strengthen</li><li>
Risks to economic outlook generally balanced in fy2023 and fy2024,
but skewed to downside for fy2025</li><li>
There is possibility wage growth may not strengthen as expected next
year onward, causing prices to deviate downward</li></ul><p>Summary bullets are via Reuters. </p><p>The main news is that the 1% 10-year JGB yield cap has been formalised. The Nikkei reported on Monday US time that Bank was considering a 1.5% cap, but that has not panned out.</p><p>Stay tuned for Bank of Japan Governor Ueda's news conference at 0630 GMT. </p>

This article was written by Eamonn Sheridan at www.forexlive.com.