Having lifted its bond-market peg, how much tighter will monetary policy get?
Save time by listening to our audio articles as you multitaskhas intervened in bond markets to keep the ten-year bond yield at around 0%, a policy known as “yield-curve control”. Technically, the bank permitted fluctuations of a quarter of a percentage point around the 0% goal. But the upper limit of 0.25% is what mattered, especially this year, as upward pressure on yields built around the globe. Now thewill allow moves of half a percentage point around zero.
For most of the policy’s history that more or less worked. In 2022, however, the peg has come under considerable pressure as traders have speculated that monetary policy would need to be tightened. The chasm between the policies of Japan and those in the rest of the rich world caused the yen to plunge by 23% against the dollar from the start of 2022 to mid-October. In October, annual inflation was 3.6%, a 40-year high and well above the’s 2% target.
How far will Japan’s central bank now go? After the announcement the dollar fell by 3.4% against the yen, but the Japanese currency remains at its weakest level in two decades. Economists are watching the, Japan’s springtime wage negotiations between large companies and trade unions, for more signs of inflation. Japanese firms raised winter bonuses by 9.7%, according toMr Kuroda claims that he has not tightened monetary policy, only responded to volatile market conditions.
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