Investors are bracing for a potential big policy shift by the Bank of Japan as soaring inflation may force the end of its ultra-low rates pledge.
Investors are bracing for a potential policy shift by the dovish Bank of Japan as soon as Wednesday, anticipating the central bank will ditch its pledge to keep borrowing costs fixed at ultra-low rates in the face of rising inflation.
“Tomorrow’s meeting makes the most sense to make big changes to this program,” said Tom Nash, a fixed income portfolio manager at UBS Asset Management.Yield curve control is a tool to keep borrowing costs low to stimulate spending and lift inflation in a slowing economy. But since the end of the pandemic, price growth has surged, biting into consumers’ purchasing power.
“Something is broken with this policy, and it feels like it’s just a Band-Aid. Something bigger needs to be done,” said Mr Nash. Since then, bond investors have been pushing up Japan’s risk-free rate to test the central bank’s resolve.
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