U.S. long-term interest rates have risen unexpectedly since August… Japan needs to discuss policy revision
The Yomiuri Shimbun and others reported that the Bank of Japan will discuss tolerating the rise in long-term interest rates to a certain extent, which it has suppressed as part of its financial easing policy, at its financial policy decision meeting on the 31st.
In fact, there is a strong possibility of acknowledging an increase beyond 1.0%. This is the first policy revision by the Bank of Japan in three months since July of this year.
It is interpreted that Japan has decided to revise its financial policy again as domestic interest rates are also rising against the backdrop of rising long-term interest rates in the United States, which could have a negative impact on the financial market.
The Bank of Japan made the operation of interest rate manipulation more flexible at the July financial policy decision meeting and changed the upper limit target for the 10-year government bond interest rate to 0.5%. In addition, by introducing a measure to carry out a ‘continuous limit price purchase operation (open market operation)’ to purchase an unlimited number of government bonds at a long-term interest rate of 1%, 1% was set as the de facto upper limit of long-term interest rates.
However, as U.S. long-term interest rates rose unexpectedly after August, discussions on policy revision became necessary.
The interest rate on 10-year government bonds, a representative indicator of Japan’s long-term interest rate, is rising to a level close to 0.9%. The Bank of Japan is introducing the ‘Yield Curve Control (YCC)’ policy, which sets the short-term interest rate to minus 0.1% and the long-term interest rate to around 0%. Yomiuri reported that there is a possibility that long-term interest rates will rise further by flexing the policy again.
Yomiuri pointed out, “Due to policy revisions, the yen-dollar exchange rate will tend to become stronger as the yen and weaker as the dollar, but since U.S. interest rates are at a historically high level, the impact on the yen-dollar exchange rate may be limited.”
The Nippon Keizai Shimbun predicted the results of the financial policy meeting, saying, “A plan to allow interest rates to rise above 1% to a certain degree by flexing the de facto upper limit of long-term interest rates, which is currently set at 1%, is likely to be influential.” Against this background, Japan’s long-term interest rate is approaching 1%. “The Bank of Japan aims to avoid a situation where distortions in market functions increase by suppressing interest rates,” the report said.
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.