BoJ released the Summary of Opinions at the July 30/31 monetary policy meeting today. There BoJ added forward guidance to ” maintain the current extremely low levels of short- and long-term interest rates for an extended period of time”. Also, BoJ is allowing 10 year JGB yield to move between -0.1% and +0.1%, as Governor Haruhiko Kuroda noted in the press conference.
The summary of opinions noted that it’s “extremely important” to introducing forward guidance as a new measure. And, that would strengthen its commitment to achieving the price stability target, in order to ensure public confidence in its strong stance toward achieving the target.”
Also, the summary noted that “controlling the long-term yields in a flexible manner is likely to contribute to maintaining and improving market functioning.” Rise in interest rates “is expected to be effective in alleviating the cumulative impact on the functioning of financial intermediation and enhancing the sustainability of the Bank’s policy.
Additionally, “referring to the recent developments in long-term interest rates in major economies, it can be considered appropriate for interest rate control in Japan to allow the yields to move upward and downward by around 0.25 percent.” Though, most member agreed that it should be “made clear at the press conference” that currently yield may move between -0.1% to 0.1%.
However, the summary also noted concerns that ” when medium- to long-term inflation expectations are weak, making policy adjustments that could allow the long-term yields to rise may lead to an increase in real interest rates and thereby contribute to sluggish prices.”