TOKYO : As aggressive U.S. interest rate hikes look like they might be nearing an end, Japan's central bank faces its own tricky decision this week over whether it should take another step towards phasing out its controversial yield control programme.
But the board may debate making minor tweaks to the policy, such as widening the allowance band set around the 10-year yield target, if it feels the cost of YCC is beginning to outweigh the benefits, say sources familiar with its thinking. With the BOJ set to keep short-term rates negative, a tweak to the yield cap or allowance band is unlikely to trigger a spike in borrowing costs that would severely hurt the economy.
The BOJ may not afford to wait too long. Market liquidity remains thin due to the BOJ's heavy bond buying. Yen declines, driven by ultra-low Japanese rates, have pushed up import costs. Japan's top financial diplomat last week suggested the BOJ may tweak its approach to monetary stimulus at the upcoming meeting due to"signs of change" in corporate behaviour.
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