Exclusive Financial Report] Bank of Japan: Review of Financial Policy Decision Meeting.
2023-01-20
■ The Bank of Japan decided to expand the supply of co-guarantee funds, but the effect is still unknown
■ Against the background of prices and the situation of the Japanese government bond market, I believe that the observation of the Bank of Japan's early policy revision will not retreat
At the Bank of Japan's financial policy decision meeting (hereinafter referred to as the policy meeting) held on January 17 and 18, no decision related to policy amendment was made, but only the expansion of the operation of the supply of mutual guarantee funds. For the announcement of the Bank of Japan, the reaction of the financial market is the rise of share price, the rise of interest rate and the depreciation of the yen, but this is only the superficial trend of the release of the position of the short-term forecast policy correction.
The expansion of the joint guarantee fund supply project is a decision made to maintain flexibility. However, the actual impact on the Japanese government bond market depends on the future actions of the Bank of Japan. The effect is still unknown. The key points of this operation are "applicable interest rate" and "loan term". The applicable interest rate is changed from the original fixed to zero to "determine the loan situation according to the actual situation of the market" (interest rate bidding), and the maximum loan term is 10 years. The Bank of Japan immediately announced that the longest 5-year operation in history would be implemented from the 23rd. First of all, we want to see the bidding situation clearly. Although the Bank of Japan did not directly purchase government bonds, it flexibly applied this operation in order to correct the distortion of the yield curve.
However, the offensive and defensive war between the financial market and the Bank of Japan around policy revision is also expected to be intermittent in the future. Including the press conference of President Kuroda of the Bank of Japan, the message sent by the Bank of Japan this time cannot eliminate the sense of opacity in the Japanese government bond market. There are two key points: (1) the trend of prices in Japan, and (2) the increase in the bidding and bid winning amount of the Bank of Japan's treasury bond replenishment operation deserve attention.
(1) The “Economic Price Outlook (Outlook Report)” once again showed that the price outlook for 2024 could not reach the target level of the Bank of Japan (up 2% year on year). In contrast, the national consumer price index (CPI) for October to December last year, published on the 20th, showed that the core prices except fresh food rose by 4.0% year-on-year, which is expected to reach twice the target of the Bank of Japan. The upward pressure on interest brought by rising prices will not weaken.
(2) It is mainly the operation of securities companies borrowing specific types of treasury bonds from the Bank of Japan, but the number of bids and winning bids on the 17th and 18th expanded to more than 8 trillion yen, and the Japanese treasury market was worried about the decline in liquidity. The explanation that the market function has not been restored is easy to spread before the bidding and winning amount of the supplementary supply operation of government bonds continue to decrease. I don't think the Bank of Japan's policy correction observation will fall back in the early stage.