BoJ chief says stim­u­lus work­ing

The Pak Banker - - COMPANIES/BOSS -

As con­sumer prices stag­nate, the Bank of Ja­pan is point­ing to fall­ing in­fla­tion-ad­justed yields as ev­i­dence its stim­u­lus pro­gram is lift­ing ex­pec­ta­tions for liv­ing-cost in­creases.

Ja­pan's 10-year gov­ern­ment bonds yield a neg­a­tive 0.55 per­cent when ad­justed for the ex­pec­ta­tions in­cluded in in­fla­tion-linked debt prices, while the sim­i­lar mea­sure for the U.S. is a pos­i­tive 0.46 per­cent. Since the start of the year, pro­jec­tions for in­fla­tion over the next decade have climbed 19 ba­sis points, while es­ti­mated real yields for the pe­riod have fallen 12 ba­sis points, ac­cord­ing to data.

BoJ Gover­nor Haruhiko Kuroda last month em­pha­sized the ef­fect of mon­e­tary pol­icy on in­fla­tion ex­pec­ta­tions and real yields as he re­it­er­ated con­fi­dence in reach­ing a 2 per­cent in­fla­tion goal. That sug­gests he will stick to the cur­rent level of stim­u­lus, even as the cen­tral bank's pre­ferred gauge of con­sumer prices has flat-lined this year.

"Re­marks about the de­cline in real yields have been on the rise be­cause the BOJ wants to em­pha­size the ef­fec­tive­ness of quan­ti­ta­tive eas­ing," said Kazuhiko Ogata, a Tokyo-based econ- omist at Credit Agri­cole SA. "They seem to be strug­gling to show their poli­cies are work­ing." The BoJ's stim­u­lus, which has scope to snap up ev­ery new bond the gov­ern­ment is­sues, is push­ing down nom­i­nal yields to the low­est glob­ally af­ter Switzer­land. The 10-year bond yield slumped as low as a record 0.195 per­cent in Jan­uary, and was at 0.39 per­cent as of 3:13 p.m. Tues­day in Tokyo. The equiv­a­lent US Trea­sury note yielded 2.16 per­cent.

Even as break-even rates have climbed this year, core con­sumer prices, which strip out food costs and the ef­fects of last year's con­sump­tion tax hike, have hov­ered be­tween zero and gains of just 0.2 per­cent since Jan­uary fol­low­ing oil's big­gest plunge last year since the fi­nan­cial cri­sis. Kuroda re­it­er­ated that un­der­ly­ing prices con­tinue to im­prove steadily and no ad­di­tional stim­u­lus is needed at this time, in an in­ter­view with the Yomi­uri news­pa­per on July 31. He re­peated his view that price gains would ac­cel­er­ate sig­nif­i­cantly later this year. "By fo­cus­ing on in­fla­tion ex­pec­ta­tions in­stead of ac­tual in­fla­tion, the out­look ap­pears much bet­ter," said Hideo Kumano, an economist at Dai-ichi Life Re­search In­sti­tute Inc. in Tokyo.

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