BoJ Suzuki signals room to fine-tune yield curve control

Bank of Japan board member Hitoshi Suzuki said there is room to debate a fine-tuning of the central bank's yield curve control (YCC) policy, the Mainichi paper reported, signalling the chance it may raise interest rates before inflation hits its target. Suzuki also said in a separate interview with Jiji news agency that the BoJ could slow its purchases of exchange-traded funds (ETF) or change the way it buys them in the future.
"It's inappropriate for interest rates to show no changes until the 2 percent inflation target is hit, and then jump abruptly once the target is achieved," Suzuki said in the interview with the Mainichi daily newspaper. "There is room to debate a fine-tuning of YCC once inflation heads near 2 percent, so that markets can gradually accept the changes," he said.
The remarks by the former commercial bank executive are the strongest signal to date that the BoJ could move up its interest rate targets before 2 percent inflation is achieved, to ease the hit to bank margins from years of ultra-low borrowing costs. Suzuki said the BoJ's negative rate policy is having a "significant" impact on financial institutions' profits. "If the health of financial institutions is in trouble, it's possible monetary policy won't function well," Suzuki was quoted as saying.
"I'm carefully watching how our policy of controlling the yield curve affects the economy, and whether or not it is creating any distortions," Suzuki said. People familiar with the central bank's thinking have told Reuters the BoJ is dropping subtle, yet intentional, hints it could edge away from crisis-mode stimulus earlier than expected, through a future hike in its yield target.
After three years of heavy money printing failed to fire up inflation, the BoJ shifted last year to a policy targeting interest rates. It now guides short-term interest rates at minus 0.1 percent and long-term yields around zero percent. The central bank also buys huge amounts of government bonds and risky assets, such as ETFs, though inflation remains well below its target.
"The BoJ's ETF buying is part of its monetary policy framework and must be continued to achieve 2 percent inflation at the earliest date possible," Suzuki said in an interview with Jiji that also ran on Saturday. "We won't make decisions on our ETF buying looking just at the stock market. But changing the amount or method of our purchases is a future option," he added.