(31 JULY 2018)DAILY MARKET BRIEF 1:BoJ keeps rates unchanged but allows fluctuation on the yield curve

During today’s monetary policy meeting, the Bank of Japan (BoJ) confirmed it will maintain its short-term policy interest rate at -0.10% “for an extended period of time”, unchanged since 29. January 2016. The BoJ also confirmed investors’ expectations by announcing a change to its yield curve strategy, allowing more policy flexibility.

Indeed, the BoJ confirmed its willingness to maintain the 10-year JGB around 0%, but confirms that it could fluctuate (upward or downward) in that range. This is good news for the banking sector, for which the flat yield curve squeezed lending profits margins previously. Since the BoJ already prevented any rise in the 10-year yield above 0% with the use of unlimited bond purchases amidst its prior curve strategy, there is no doubt that the BoJ will be facing stronger headwinds when trying to curb yield rise. The end effect should be a stronger yen.

By Vincent Mivelaz