BOJ Kuroda said the widening of the YCC JGB band is “definitely not a step towards an exit”

Bank of Japan Governor Kuroda spoke on Monday in a speech delivered to the business lobby Keidanren.

The full text is here on the BOJ website:

Kuroda’s key remarks once again reiterated his view that ultra-easy monetary policy would be maintained. Kuroda said the widening of the tolerance band within which the 10-year JGB would be allowed to fluctuate, to +/-0.5% from +/-0.25% previously, was aimed at improving the function of the market. .

  • “This is definitely not a step towards an exit”
  • the BOJ will maintain “maximum support” for the economy by maintaining accommodative financial conditions.
  • “The bank will seek to achieve the price stability objective in a sustainable and stable manner, accompanied by salary increases, continuing with monetary easing within the framework of yield

    A return represents the earnings generated by an investment or security over a certain period of time. Returns are usually shown in percentage terms and are in the form of interest or dividends received from them. These figures do not include price changes, which separates them from the total return. Accordingly, a yield applies to various established rates of return on stocks, fixed income instruments such as bonds, and other types of investment products. Returns can be calculated as an index or as an internal rate of return, which can also be used to indicate the owner’s total return, or a portion of income. Why do returns matter? At any given time, all financial instruments compete with each other in a public market. Return analysis is one of many metrics used by analysts and investors and reflects a unique part of the total return of holding a security. For example, a higher yield allows the owner to recover his investment sooner and therefore mitigates risk. By extension, a high return may have resulted from a fall in the security’s market value as a result of increased risk. Yield levels are also influenced by inflation expectations. Fears of higher levels of inflation in the future suggest that investors would ask for a high yield or a lower price against the current coupon. The maturity of the instrument is also one of the elements that determines the risk. The relationship between yields and maturity of instruments of similar creditworthiness is described by the yield curve. Instruments at longer intervals typically outperform than short-term instruments. The yield on a debt instrument is often linked to the creditworthiness and probability of default of the issuer. The higher the risk of default, the higher the return in most cases, since issuers must offer investors some compensation for the risk.
    Read this Term curve control.

Kuroda noted that he hoped that the conditions for sustained and stable development would be in place. inflation

Inflation

Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the increase in the general price level where a given currency effectively buys less than in previous periods. In terms of assessing the strength of currencies and, by extension, the exchange rate, inflation or its measures are extremely influential. Inflation stems from the general creation of money. This money is measured by the level of the total money supply of a specific currency, for example, the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (as measured by GDP). As such, this generates demand pressure on a supply that is not growing at the same rate. Then the consumer price index increases, generating inflation. How does inflation affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies at various levels. This includes purchasing power parity, which attempts to compare different purchasing power of each other. country according to the general price level. By doing so, this makes it possible to determine the country with the most expensive cost of living. Consequently, the currency with the higher inflation rate loses value and depreciates, while the currency with the lower inflation rate appreciates in the foreign exchange market. Interest rates are also impacted. Inflation rates that are too high raise interest rates, which has the effect of depreciating the currency on the exchange rate. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of making the currency appreciate in the foreign exchange market.

Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the increase in the general price level where a given currency effectively buys less than in previous periods. In terms of assessing the strength of currencies and, by extension, the exchange rate, inflation or its measures are extremely influential. Inflation stems from the general creation of money. This money is measured by the level of the total money supply of a specific currency, for example, the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (as measured by GDP). As such, this generates demand pressure on a supply that is not growing at the same rate. Then the consumer price index increases, generating inflation. How does inflation affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies at various levels. This includes purchasing power parity, which attempts to compare different purchasing power of each other. country according to the general price level. By doing so, this makes it possible to determine the country with the most expensive cost of living. Consequently, the currency with the higher inflation rate loses value and depreciates, while the currency with the lower inflation rate appreciates in the foreign exchange market. Interest rates are also impacted. Inflation rates that are too high raise interest rates, which has the effect of depreciating the currency on the exchange rate. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of making the currency appreciate in the foreign exchange market.
Read this Term.

  • “Labor market conditions in Japan are expected to tighten further and the behavior of companies in setting prices and wages is also likely to change.”
  • “We are approaching a critical moment to get out of the prolonged period of low inflation and low growth since the collapse of the economic bubble.”

Sustained and stable inflation of 2% or more would allow the BOJ to take steps to reduce its ultra-loose policy. But not yet!

Kuroda didn’t lead like he did when he expected this. However, he once again said that over the course of the new fiscal year, which begins in April 2023, Japan’s core consumer inflation is likely to average less than 2%.

Separately on Monday, Prime Minister Kishida raised the possibility of a review of the government’s deal with the BOJ on Monday after a new BOJ governor is appointed. The change would dilute the BOJ’s commitment to hit the 2% inflation target as soon as possible.

  • “It’s something for after the new BOJ governor is decided.”

This is in reference to (as of December 19):

Also on Monday there was data from Japan.

The Services PPI for November was 1.7% YoY

  • vs expected 1.7% and the previous one of 1.8%

Forex markets are mostly closed during holidays or only operate with very little liquidity. In Asia on Monday Japan was the only major foreign exchange center open. Tuesday will be Japan and Singapore only. Very tight liquidity will once again be something to be wary of.

USD/JPY update:

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