Japan: Yield curve control policy is highly sustainable – Nomura

Analysts at Nomura point out that just over a year has passed since the BOJ adopted its policy of QQE with yield curve control and prior to the introduction of this policy, the sheer scale of the BOJ’s JGB purchases made many market participants wonder if the central bank had reached the limits of what monetary policy can achieve.

Key Quotes

“Interest in this subject has faded since the BOJ adopted yield curve control and shifted its monetary policy focus from JGB purchase volume to interest rate levels.”

“The market has fully factored in the efficacy of yield curve controls. Any change in the market impact of BOJ’s JGB purchases could significantly reduce the volume of purchases of long-term bonds required to support its interest rate operations below the levels seen prior to the introduction of the yield curve control policy.”

“Considering that the BOJ has already reduced its JGB purchases, if we assume that net purchases will be on a scale similar to the lower limit of its recent net purchases of each maturity (ie, equivalent to about ¥30trn/year), the BOJ is unlikely to purchase more JGBs than MOF issues. On that assumption, the BOJ’s current monetary policy looks sustainable.”

“We interpret the BOJ’s "¥80trn quota" for purchases of long-term JGBs as a kind of insurance policy that gives the central bank the flexibility to act if the market should overstep the BOJ's mark.”