Japan – Clement Tan

By Clement Tan | July 28, 2023 | CNBC.com

Japan’s central bank on Friday loosened its yield curve control, underscoring concerns about its protracted monetary easing on financial markets and the real economy.

In a policy statement, the Bank of Japan said it will continue to allow 10-year Japanese government bond yields to fluctuate in the range of around plus and minus 0.5 percentage points from its 0% target level — though it will offer to purchase 10-year JGBs at 1% through fixed-rate operations. This move effectively expands its tolerance by a further 50 basis points.

The BOJ pledged to “conduct yield curve control with greater flexibility, regarding the upper and lower bounds of the range as references, not as rigid limits, in its market operations,” citing the need to remain nimble given “extremely high uncertainties for Japan’s economic activity and prices.”

In what was BOJ Governor Kazuo Ueda’s first major policy change since he took the helm in April, the central bank also kept its ultra-loose interest rate intact, electing to hold its short-term interest rate target at -0.1% after its July policy meeting. It also raised its median forecast for inflation to 2.5% for fiscal 2023, up from its 1.8% prediction in April.

“This is not intended as a step toward policy normalization. Rather, it’s a step aimed at enhancing the sustainability of YCC,” Ueda said at a press conference in Tokyo on Friday afternoon explaining the central bank’s decision, according to a translation provided by Reuters.

By Clement Tan | June 13, 2023 | CNBC.com

For the first time in decades, Japan stocks are back in vogue.

In the last few weeks, the benchmark Nikkei 225 and Topix indexes touched their highest levels in more than 30 years as foreign investors pour into Japanese equities with a consistency rarely seen in at least a decade.

After what turned out to be a false dawn a decade ago, when “Abenomics” first raised hopes of corporate governance reform in Japan, many seem to think better of the latest measures by the Tokyo exchange.

“The recent Tokyo Stock Exchange initiative is a game-changing moment, because it’s going to challenge a lot of companies that are trading on less than one-time price-to-book to improve profitability and support their share price,” said Oliver Lee, a Singapore-based client portfolio manager, at Eastspring Investments.

The Tokyo Exchange Group recently finalized its market restructuring rules. Among the latest measures was one that directed listed companies to “comply or explain” if they are trading below a price-to-book ratio of one — an indication a company may not be using its capital efficiently.

The exchange warned such companies could face the prospect of delisting as soon as 2026.

Part of the optimism in Japanese stocks stems from how specific and tangible the Tokyo exchange’s requirements are this time round. Warren Buffett’s bullish calls on Japanese equities has also helped boost confidence among foreign investors.

There is hope this would press Japanese companies’ notoriously resistant management — which typically view shareholders as enemies — for greater capital efficiency and profitability. It could in turn lead to a domino effect among other Japanese companies once the big players start to make changes.

Tag: Japan

Bank of Japan loosens yield curve control, pledging ‘greater flexibility’

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