TOKYO : One of Bank of Japan Governor Kazuo Ueda's main challenges will be to phase out yield curve control , which has come under criticism for distorting markets by keeping long-term interest rates from rising.
The idea was to control the shape of the yield curve to suppress short- to medium-term rates - which affect corporate borrowers - without depressing super-long yields too much and reducing returns for pension funds and life insurers.The BOJ chose a rate regime because it had reached the limit of quantitative easing, where it bought targeted amounts of bonds to push down yields, hoping to stoke inflation and economic activity.
In March 2021, the bank widened the band to 0.25 per cent in either direction to breathe life back into a market its buying had paralysed. The BOJ ramped up buying, including through offers to buy unlimited amounts of bonds, to defend its yield cap. As such, the central bank could take steps to make YCC more sustainable, such as by allowing bond yields to rise more flexibly reflecting accelerating growth and inflation.
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