(Bloomberg) -- The Bank of Japan may axe its yield-curve control program before year-end if rising prices prove stickier than expected, according Pacific Investment Management Co.
“If data indicate inflation can sustain more than the BOJ currently forecasts, which we expect, then the BOJ could abolish YCC late this year or early next,” Richard Clarida, global economic advisor, said in a note. The central bank may also raise its short-term policy interest rate to 0% by early next year, he said.
Japanese government bonds are under intense selling pressure as inflation at home and soaring Treasury yields embolden traders to bet the BOJ will make a policy shift sooner rather than later. Yields on 10-year JGBs that are the target of YCC rose to a decade high of 0.805% on Wednesday, reflecting mounting expectations Japan may have to join peers from the US to Australia in raising interest rates.
The 10-year yield edged down to 0.79% in early Asia trading Thursday. The BOJ said late Wednesday it would conduct an operation to supply funds to banks on Oct. 6, reaffirming its intent to keep interest rates in check.
“At some point, as the economy reflates, we expect the BOJ will move away from the zero or below-zero short-term rates that have prevailed for over a decade,” Clarida said. “The policy rate could be hiked to 0% by early 2024.”
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