Ex-BoJ’s Sekine: Central bank set to raise yield target in June

Former Bank of Japan (BoJ) Chief Economist, Toshitaka Sekine, said in an MNI interview on Monday, the central bank “is likely to raise its target for the 10-year bond yield as early as its June 15-16 meeting, given that it can point to a rise in trend inflation rate above 1% from 0%.”

Additional takeaways

“It will be very complicated to explain, but it will be sufficient for the BoJ to point out that the trend inflation rate rose above 1%, which will justify the rise of the long-term target, even though it stayed at about 0% for a prolonged period.”

“It is unreasonable for the BoJ to keep the long-term policy target at about 0% on the basis that the natural rate of interest in real terms is near 0%, but the trend inflation rate is not 0%.”

“Suppose that the real natural rate of interest has remained near 0% and trend inflation has risen to 1%, then the natural rate of interest in nominal terms is around 1%. This means that the target of the YCC needs to be adjusted to 1%. If the BoJ is not confident about the level of the nominal natural interest rate, it needs to widen the range of the target to incorporate uncertainty.”

The inflation forecasts in the Outlook Report “very amazing.”

“As a result, the BoJ didn’t change the policy framework, judging from the second perspective, amid the heightened uncertainties.”