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Yahoo
6 days ago
- Business
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BOJ to consider slowing pace of bond tapering next year, sources say
By Leika Kihara TOKYO (Reuters) -The Bank of Japan is considering slowing the pace of tapering in its bond purchases from next fiscal year onward, said four sources familiar with its thinking, a move that would signal its focus on avoiding big bond market disruptions. The move would come in the wake of heightened volatility in the Japanese government bond (JGB) market, with super-long yields having spiked to record highs last month reflecting investors' concern over Japan's worsening public finances. There is no consensus yet within the BOJ, as some prefer to maintain the current pace on the view the bank should focus on reducing its presence in the bond market, the sources said. A final decision will be made at the BOJ's next policy meeting on June 16-17, when the board conducts a review of a current tapering plan that runs through March and comes up with a subsequent programme for April 2026 onward. The BOJ received a sizeable number of requests from bond market participants to cut its quarterly taper size to around 200 billion yen, minutes of its meeting on May 20-21 with bank and financial institutions showed on Monday. Some policymakers see such views as a reasonable ballpark figure, the sources said. That would be half the size of the reduction under the current plan laid out last year, at which the BOJ cuts bond buying by around 400 billion yen per quarter until March 2026. "The balance of opinions at the meeting will be a crucial factor in the BOJ's discussions on the taper plan," one of the sources said. The sources spoke on condition of anonymity as they were not authorised to speak publicly. The BOJ began tapering its huge bond buying last year to wean the economy off decades of massive stimulus, and breathe life back to a market made dormant by its huge presence. Though the BOJ still holds huge amounts of JGBs, some market players are now worrying that the steady reduction in the bank's bond buying could leave them vulnerable during heightened market volatility such as last month's sell-off in super-long bonds. While many market players expect the BOJ to maintain or slightly slow the pace of tapering beyond April 2026, the BOJ has been mum on what the new plan could look like. Having ditched a bond yield control policy last year, the BOJ is in no mood to ramp up bond buying in the wake of recent rises in super-long bond yields as medium and shorter-maturity bonds, as well as bank lending rates, remained stable. But the volatility seen in the super-long JGB market has heightened awareness within the BOJ of the need to ensure its bond tapering plans do not destabilise markets, the sources said. "The BOJ won't react directly to the rise in super-long yields, but is mindful of the risk the move could affect the entire yield curve," a second source said. The new programme is likely to cover a one-year period running through March 2027. MILDER TAPERING EYED The BOJ has lagged well behind its global counterparts in whittling down crisis-era stimulus, having only exited last year a decade-long, massive stimulus aimed at pulling the economy out of stagnation. It also ended negative interest rates last year, though short-term borrowing costs are still stuck at 0.5%. While the BOJ also began tapering its huge bond buying last year, it still owns roughly half of outstanding JGBs. At its upcoming review, the BOJ is likely to roughly maintain its taper plan for this year, which would see monthly bond buying halved to 3 trillion yen by March 2026. If the BOJ were to cut bond buying by 200 billion yen per quarter from fiscal 2026, its monthly buying will fall to around 2 trillion yen by the March 2027 end of the business year. That would roughly mesh with requests made by some market participants for the BOJ to reduce its monthly bond buying to around 1 trillion to 2 trillion yen, according to the minutes of the meeting. Compiled by the BOJ's staff, the minutes of the bank's meetings with bond market participants is seen as reflecting its preferred approach on bond tapering, and thus offers clues on the bank's final decision, analysts say. ($1 = 144.0200 yen) Sign in to access your portfolio
Yahoo
6 days ago
- Business
- Yahoo
Japan must pursue payment innovation as society becomes cash-less, BOJ official says
By Leika Kihara TOKYO (Reuters) -Japan currently has no plan to issue a central bank digital currency (CBDC) but must continue innovating its payment and settlement system in an increasingly cash-less society, a senior central bank official said on Wednesday. Although banknote issuance remains high in Japan, usage of notes could fall significantly in the future amid rapid digitalisation, said Bank of Japan (BOJ) Executive Director Kazushige Kamiyama. "As such, Japan must consider what steps it can take now to ensure its retail settlement system is convenient, efficient, accessible universally, while being safe and resilient," he said in a speech. While the BOJ currently has no plan to issue a CBDC, it must keep up efforts to enhance the safety and efficiency of Japan's payment and settlement system, Kamiyama said in a meeting with private firms on a pilot programme for developing a digital yen. The BOJ has said no decision has been made yet on whether Japan will actually issue a CBDC, which must be made by the government and parliament. But the central bank has been conducting experiments and exchanging views with private firms on a digital yen, to be ready in case Japan decides to issue a CBDC. CBDCs are back in the spotlight after U.S. President Donald Trump banned work on a digital dollar in one of his first moves after regaining power in January.
Yahoo
6 days ago
- Business
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Japan must pursue payment innovation as society becomes cash-less, BOJ official says
By Leika Kihara TOKYO (Reuters) -Japan currently has no plan to issue a central bank digital currency (CBDC) but must continue innovating its payment and settlement system in an increasingly cash-less society, a senior central bank official said on Wednesday. Although banknote issuance remains high in Japan, usage of notes could fall significantly in the future amid rapid digitalisation, said Bank of Japan (BOJ) Executive Director Kazushige Kamiyama. "As such, Japan must consider what steps it can take now to ensure its retail settlement system is convenient, efficient, accessible universally, while being safe and resilient," he said in a speech. While the BOJ currently has no plan to issue a CBDC, it must keep up efforts to enhance the safety and efficiency of Japan's payment and settlement system, Kamiyama said in a meeting with private firms on a pilot programme for developing a digital yen. The BOJ has said no decision has been made yet on whether Japan will actually issue a CBDC, which must be made by the government and parliament. But the central bank has been conducting experiments and exchanging views with private firms on a digital yen, to be ready in case Japan decides to issue a CBDC. CBDCs are back in the spotlight after U.S. President Donald Trump banned work on a digital dollar in one of his first moves after regaining power in January.
Yahoo
7 days ago
- Business
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BOJ's Ueda signals readiness to raise rates if growth re-accelerates
By Leika Kihara and Makiko Yamazaki TOKYO (Reuters) -Bank of Japan Governor Kazuo Ueda said on Tuesday the central bank will raise interest rates once it is convinced enough that economic and price growth will re-accelerate after a period of stagnation. Ueda also signaled the central bank will continue to taper its huge bond buying even after an existing plan running through March expires, underscoring its resolve to stay on course for a slow but steady withdrawal of ultra-easy policy. The hit from higher U.S. tariffs on Japan's economy could first come from a drop in exports, which could hurt corporate profits and consumer sentiment, Ueda said. "U.S. tariffs could weigh somewhat on Japanese companies' winter bonus payments and next year's wage talks with unions," Ueda told parliament. "Wage growth may slow somewhat. But we expect economic and wage growth to re-accelerate" and keep consumption on a moderate uptrend, he added. The BOJ ended a massive stimulus last year and in January raised short-term interest rates to 0.5% on the view Japan was on the cusp of durably hitting its 2% inflation target. While the central bank has signalled a readiness to raise rates further, the economic repercussions from higher U.S. tariffs forced it to cut its growth forecasts in May. Stubbornly high food prices, blamed largely on rising import costs and soaring rice prices, have also complicated the BOJ's rate decisions by simultaneously hurting consumption and keeping headline inflation well above its target. The BOJ is keeping interest rates low even as headline inflation hit 4.6% in April - well above its 2% target - as it expects the rise in food prices to slow, Ueda said. Underlying inflation - or price rises driven by domestic demand and higher wages - remains short of 2%, but will likely re-accelerate after a period of stagnation, Ueda said. "If we're convinced our forecast will materialise, we will adjust the degree of monetary support by raising interest rates," Ueda said, noting that uncertainty over the outlook was "extremely high". A Reuters poll, taken on May 7-13, showed most economists expect the BOJ to hold rates steady through September with a small majority forecasting a hike by year-end. At its next policy meeting on June 16-17, the BOJ will conduct a review of its existing bond-taper plan and lay out a new programme for April 2026 onward. The plan is drawing market attention as concern over Japan's worsening finances and dwindling demand from domestic investors caused a spike in super-long government bond yields last month. The BOJ held meetings with bond market participants on May 20-21 to seek their views on the desirable taper plan, which will be taken into account at the June rate review. "At the meeting, calls for the BOJ to make amendments to the existing plan were limited," Ueda said, suggesting the review will lead to no major tweak to the existing taper programme. "As for our plan beyond April 2026, many opinions called on the need for the BOJ to continue tapering, while balancing the need to do so flexibility and predictably," he said. Minutes of the meeting, released on Monday, showed the BOJ received a sizeable number of requests to maintain or slightly slow the pace of tapering from fiscal year 2026 onward. While the participants diverged on how much the BOJ should taper beyond April 2026, several called for reducing its monthly purchases to around 1 trillion yen to 2 trillion yen ($7 billion-$14 billion) by the end of the new taper programme, the minutes showed. ($1 = 143.0600 yen) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
30-05-2025
- Business
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Core inflation in Japan capital hits 2-year high, keeps rate hike chance alive
By Leika Kihara TOKYO (Reuters) -Core inflation in Japan's capital hit a more than two-year high on persistent rises in food costs, data showed on Friday, keeping the central bank under pressure to hike interest rates further. But factory output slid in April in a sign manufacturers are feeling the pinch from slowing global demand, highlighting the dilemma the Bank of Japan faces in balancing inflationary pressures and the hit to the economy from steep U.S. tariffs. The Tokyo core consumer price index (CPI), which excludes volatile fresh food costs, rose 3.6% in May from a year earlier, exceeding market forecasts for a 3.5% gain and perking up from a 3.4% rise in April. It was the fastest annual pace of increase since January 2023, when it hit 4.3%. Core inflation in Tokyo, seen as a leading indicator of nationwide price trends, thus exceeded the BOJ's 2% target for three straight years. A separate index that strips away the effects of both fresh food and fuel costs, closely watched by the BOJ as a broader price trend indicator, rose 3.3% in May from a year earlier after a 3.1% rise in March. "The Tokyo CPI showed a further broad-based acceleration in inflation, which suggests that the BOJ may hike even earlier than our current forecast of October," said Marcel Thieliant, head of Asia-Pacific at Capital Economics. A Reuters poll, taken on May 7-13, showed most economists expect the BOJ to hold rates steady through September with a small majority forecasting a hike by year-end. MORE PRICE HIKES COMING Sticky food inflation remained the main driver of the rise with non-fresh food prices up 6.9% in May from a year earlier and the cost of rice soaring 93.2%. But services inflation also accelerated to 2.2% in May from 2.0% in April, suggesting companies were gradually passing on rising labour costs. "The fact services prices rose is positive for the BOJ, which wants to keep alive expectations of further rate hikes," said Masato Koike, senior economist at Sompo Institute Plus. "But U.S. policy uncertainty will make it hard to keep the BOJ from hiking too soon. By the time the dust settles, price developments could have changed in a way that makes rate hikes difficult," he added. Many analysts expect consumer inflation to slow in coming months as falling crude oil prices and the drop in import costs from the yen's rebound. The hit to exports from U.S. tariffs and slowing global demand could also hurt Japanese manufacturers' profits and discourage them from raising wages next year. Separate data released on Friday showed Japan's factory output fell in April by 0.9% from the previous month. Manufacturers surveyed by the government expect output to increase 9.0% in May and drop 3.4% in June, the data showed. But food inflation may not allow the BOJ to pause on rate hikes for too long. Japanese firms plan to hike prices for 1,932 food and beverages in June, triple the number from a year ago, a survey by private think tank Teikoku Databank showed on Friday. BOJ Governor Kazuo Ueda told parliament on Friday the central bank was mindful that companies continued to actively hike wages and raise prices to pass on higher costs. "Japan may face a tricky situation where public attention to rising food prices heighten inflation expectations, which have so far been stable," said Tsutomu Watanabe, an academic at the University of Tokyo's graduate school of economics. The BOJ ended a massive stimulus programme last year and in January raised short-term rates to 0.5% on the view Japan was on the cusp of durably meeting its 2% inflation target. While the central bank has signalled readiness to raise rates further, the economic repercussions from higher U.S. tariffs forced it to cut its growth forecasts and complicated decisions around the timing of the next rate increase. Sign in to access your portfolio
