BOJ Policy Change Speculation Roils Markets as Yen, Yields Jump (Inflation Near Zero)

By Anthony B. Sanders

(Bloomberg) — A dramatic day for Japan’s debt market saw yields surge on media reports of possible changes to the nation’s ultra-loose monetary policy, spurring the central bank to offer to buy an unlimited amount of bonds.

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The yield on 10-year government securities soared as much as six basis points to 0.09 percent, its biggest increase in almost two years, pulling the yen higher and weighing on stocks. While the yield came down after the purchase offer by the Bank of Japan, it then bounced back to just one basis point below the day’s high.

The dilemma for Governor Haruhiko Kuroda is that even as calls to change policy grow louder, persistently weak inflation dictates the need to maintain stimulus. Winding it back would strengthen the yen, further undermining efforts to spur higher prices, while also hitting Japanese exporters.

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While Kuroda and his board did say they would consider discussing an exit from the stimulus policy from fiscal 2019, they have also said persistently that there would be no change until an inflation target of 2 percent has been reached.

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“I know absolutely nothing about the basis for those reports,” Kuroda said when asked about speculation while he was in Buenos Aires to attend a meeting of finance ministers and central bank governors.

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The Japanese sovereign yield curve jumped, primarily on the mid and long end.

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