The Bank of Japan affirmed a plan to double the monetary base over two years after a jump in bond yields highlighted risks associated with Prime Minister Shinzo Abe’s campaign to revive the economy.
The central bank will expand the supply of money in the economy by 60 to 70 trillion yen ($683 billion) a year, as pledged in April, the BOJ said in Tokyo Wednesday. Twenty-six of 27 economists in a Bloomberg News survey forecast no change. The BOJ didn’t comment on bond prices, switching attention to Governor Haruhiko Kuroda’s press briefing at 3:30 p.m. in Tokyo.
The biggest surge in government debt yields in five years threatens to undermine the BOJ’s stimulus efforts, with companies including steelmaker JFE Holdings Inc. pulling bond sales amid the volatility. The central bank raised its assessment of the economy, as a sliding yen and gains in the stock market aid Abe’s efforts to boost wages and prices and pull the nation out of a 15-year deflationary malaise.
Pedestrians walk through a shopping street in Okayama, Japan. (Bloomberg)
“The BOJ wanted to avoid causing any speculation that it may change course on a policy of massive expansion,” said Mari Iwashita, a bond strategist at SMBC Nikko Securities Inc. in Tokyo, commenting on the absence of any reference to rising debt yields. “The focus is on how Kuroda will address this at the press conference.”
Ten-year government debt yields rose to 0.89 percent as of 12:57 p.m. in Tokyo from as low as 0.86 percent before the decision. That compared with a high of 0.92 percent last week.
The yen was little changed at 102.47 per dollar, down 16 percent for the year, a slide that’s bolstered the competitiveness of Japanese exporters while making the cost of imported goods such as energy more expensive. A government report today showed that exports in March posted the first back-to-back gain on an annual basis since May 2012. A jump in imports left Japan with a 10th straight monthly trade deficit.
Kuroda said at a government meeting on May 20 that it’s natural for yields to rise gradually as the outlook for the economy and prices improves, an official told reporters. In Seoul today, Bank of Korea Governor Kim Choong-soo said a U.S. exit from so-called quantitative easing could spur risks worldwide from rising yields.
Economists including Naohiko Baba, chief Japan economist at Goldman Sachs Group Inc., say the BOJ could expand easing in October, when price forecasts will indicate the degree of progress that it has made toward 2 percent inflation in two years.
While Group of Seven finance chiefs indicated this month that they will tolerate a sliding yen for now, South Korean Finance Ministry official Choi Hee Nam yesterday indicated continuing concern at the currency’s weakness.
Consumer prices in Japan slid 0.5 percent in March from a year before, excluding volatile fresh-food costs, highlighting the gap the BOJ has to bridge. BOJ board members last month predicted that prices would rise 1.9 percent in the fiscal year starting in April 2015, leaving out the impact of a planned sales-tax increase, their median forecast showed. (Bloomberg)
