Japan’s Firms Want BOJ to Act on Rising Bond Yields
According to a recent Reuters poll, two out of three Japanese businesses are keen on the BOJ holding long-term interest rates steady instead of letting them increase. Global markets have been experiencing considerable volatility in recent weeks owing to rise in government bond yields across several countries, in hopes for rapid economic recovery.
Expectations that the global economy could recover from the pandemic-induced damage at a faster than expected pace, powered by robust COVID-19 vaccine rollout initiatives and the numerous monetary and fiscal support measures have raised concerns of a spike in inflation. This has increased the possibility of central banks stepping in and hiking interest rates sooner than previously anticipated.
These recent moves have made it challenging for the BOJ to hold its 10-year yields at zero as part of its yield curve control initiatives even as the downturn driven by the pandemic makes it harder for Japan’s inflation to touch the central bank’s 2% target. The BOJ has one of the loosest monetary policies among leading economies, which has lasted over several years in a bid to combat deflation and pull its economy out of stagnation, and is likely to roll out more measures if deflation fears arise again.
Reuters’ latest Corporate Survey indicates that one third of firms in the country want the central bank to hold long-term interest rates unchanged and an additional one third want it to act against the recent rise in bond yields, as it could raise borrowing costs. Only 16% of the respondents want the BOJ to introduce flexibility in its bond yield target.
In addition, around 50% of Japanese companies want the BOJ to continue with its measures to purchase ETFs in the existing manner. Over 25% want the central bank to become more flexible about purchasing ETFs while around 20% are keen on seeing a reduction in this.
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