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James Hyerczyk
USD/JPY

This holiday-shortened week opened with the Bank of Japan releasing its Summary of Opinions from its monetary policy meeting in early December. The report showed BOJ policymakers were divided on how far to go in tweaking its stimulus program, with some calling for an overhaul of its strategy for achieving 2% inflation.

The document said the policy examination will focus on tweaking the BOJ’s purchases of exchange-traded funds (ETF) and operations for controlling the yield curve, according to the summary of the December 17 to 18 meeting released on Monday.

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Governor Kuroda Sees No Big Changes…Some Members Want to be Aggressive

BOJ Governor Haruhiko Kuroda has said the policy review will not lead to big changes to yield curve control (YCC) and instead focus on fine-tuning the framework to make it more sustainable.

But some BOJ board members called for a more ambitious review as the hit to growth from COVID-19 stokes fears of a return to deflation, the summary showed.

“The BOJ must conduct a renewed comprehensive assessment on what strategy it should take in achieving its price target,” one of the nine members said.

“To avoid a return to deflation, the BOJ should assess its strategy, tools, and communication for achieving its price goal,” another opinion quoted in the summary showed.

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 BOJ Tweaks Plans in December

In December, the BOJ extended the deadline for steps to ease funding strains for firms hit by COVID-19. It also unveiled a plan to seek ways to make its policy more sustainable, as the pandemic pushes prices further away from the 2% goal.

Some members said the BOJ could make its ETF purchases more flexible, so it can sustain the program for a prolonged period and ramp up buying if markets turn volatile, the summary showed.

Others saw room to tweak the YCC’s operations such as by seeking to control yields “more carefully” and allowing for a moderate steepening of the yield curve, it showed.

Under the YCC, the BOJ guides short-term interest rates at -0.1% and 10-year bond yields around zero through massive bond buying.

It also purchases huge amounts of ETFs and other risky assets, a policy that has drawn criticism from some investors for distorting pricing and drying up market liquidity.

Short-Term Outlook

Traders showed little reaction to the BOJ’s Summary of Opinions since most of it was already priced in following the policymaker’s monetary policy meeting on December 18.

For a look at all of today’s economic events, check out our economic calendar.

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