TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda said on Thursday the central bank would not try to push down super-long government bond yields - even if they rise further - because it is focused on controlling the yield curve for out to 10 years.
Kuroda told parliament he saw no immediate need to change the minus 0.1 percent short-term interest rate target and the 10-year government bond yield target of around zero percent, suggesting that the BOJ will hold off on easing policy at next week’s rate review.
Kuroda also rejected the idea of buying foreign-currency denominated bonds, something that some advisors to the government think would be a viable option to weaken the yen, because this would amount to currency intervention.
Excessive falls in super-long yields would narrow margins for investors like pension funds and life insurers, which are among the costs of the BOJ’s massive stimulus program identified at the central bank’s comprehensive assessment of its policies last month.
“We don’t think it’s desirable for the yield curve to flatten,” Kuroda told parliament. “It won’t be surprising to see super-long bond yields rise a bit more. If asked whether we would try to push down super-long yields if they rise more, the answer is no.”
BOJ Deputy Governor Kikuo Iwata told the same parliamentary session that the central bank does not need to control bond yields beyond the 10-year maturity because they have less influence on economic activity than shorter-term yields.
“Pushing down yields beyond 10 years won’t have much positive effect on the output gap. Targeting yields of up to 10 years would be the best way to achieve our 2 percent inflation target,” Iwata said. The output gap is the difference between the economy’s potential and actual output.
The BOJ last month switched its policy target to interest rates from the pace of money printing, after years of massive asset purchases failed to jolt the economy out of stagnation.
Under a new “yield curve control” (YCC) framework, the BOJ’s main easing mechanism would be to deepen negative rates, accompanied if needed by a cut in its 10-year yield target.
Kuroda said the BOJ may slow the pace of bond buying if interest rate targets could be met with fewer purchases, but he stressed the BOJ had no plan to sell bonds.
“There’s absolutely no chance now of reducing the balance of our government bond holdings,” he said.
In August, Koichi Hamada, a Yale University professor and an adviser to Prime Minister Shinzo Abe, caused a stir when he told Reuters the BOJ could consider buying foreign bonds as an option to weaken the yen and encourage inflation.
Kuroda said the BOJ could not do this because currency intervention is the responsibility of the government, not the central bank.
In response to questions about whether the BOJ would buy Treasuries if the Federal Reserve decided to sell bonds on its balance sheet, Kuroda rejected the idea.
“If the Fed sell Treasuries, it’s because they’ve decided they want rates to rise,” Kuroda said.
“If the BOJ were to then go out and buy those bonds, that would prevent rates from rising. I cannot see why this would be welcomed by U.S. authorities.”
Additional reporting by Stanley White; Editing by Eric Meijer and Simon Cameron-Moore