📝 BoJ Policy to Become Complex On Rising JPY Rates Volatility: MUFG Strategy

In our view, the BoJ intended to continue to wield JGB buying and pooled collateral fund supplying operations, though on a smaller scale than in February, and watch the 10Yr JGB yield top the 0.5% mark.

As the JPY weakened in February, the nominees for the top positions at the BoJ underwent the approval process in the Diet, including question-and-answer sessions, toward the end of the month. This suggests that the BoJ prioritized approval of the nominees in the Diet as USDJPY rose, avoiding a decline in JPY rates, and focused on monetary operations not making waves.

We expect the BoJ to end its COVID countermeasure operations in March. Even with the end nearing, BoJ COVID countermeasure operations increased in February from January. Some financial institutions tapped COVID countermeasure operations unexpectedly ahead of the post-COVID era.

The new BoJ administration is widely expected to gradually shift from a complex monetary operations framework to more traditional monetary policy operations based on theory. We expect massive monetary easing policy to return to the policy framework of before 2016, when negative interest rates and yield control operations were introduced. However, if JPY rates turn volatile as the BoJ begins to normalize monetary policy, then policy strategies may become complex and hard to understand as fund-supplying operations may be actively used and the monetary base could expand.

- MUFG Strategy