BOJ to widen band around long-term rate target on Friday: Nikkei

FILE PHOTO: A security guard walks past in front of the Bank of Japan headquarters in Tokyo, Japan January 23, 2019. REUTERS/Issei Kato/File Photo

By Leika Kihara

TOKYO (Reuters) - The Bank of Japan is expected to slightly widen an implicit band at which it allows long-term interest rates to move around its 0% target, the Nikkei newspaper reported on Thursday.

The move will be among steps the BOJ will unveil on Friday to make its massive stimulus programme sustainable, the Nikkei said, as the COVID-19 pandemic is seen prolonging a battle to achieve its 2% inflation target.

At present, the BOJ allows 10-year bond yields to rise and fall 0.2% each around its 0% target. It will widen that band and tolerate rises and falls of 0.25% each, the Nikkei said, without citing any sources.

By allowing yields to fluctuate more, the BOJ will help ease the strain ultra-low interest rates and a flattening yield curve inflict on financial institutions’ profits, the paper said.

The dollar fell against the yen, Japanese government bond (JGB) yields rose and Tokyo stocks pared earlier gains after the Nikkei report on expectations the BOJ will tolerate further rises in yields.

“JGB yields will likely face upward pressure. Markets may check to see whether the BOJ will tolerate rises in 10-year yields to 0.25%, or even 0.3%,” said Yuichi Kodama, chief economist, at Meiji Yasuda Research Institute.

The BOJ customarily does not comment during a two-day black out period set before its rate-setting meetings, when officials are forbidden from speaking to the media. The central bank will announce its monetary policy decision at the end of a two-day meeting on Friday.

At the review, the BOJ is also seen removing a pledge to buy exchange-traded funds (ETF) at an annual pace of 6 trillion yen ($55 billion), the Nikkei said, without citing sources.

In removing that guidance, the BOJ will stress its readiness to ramp up purchases only in times of market turbulence, the Nikkei said.

Under a policy dubbed yield curve control, the BOJ targets short-term interest rates at -0.1% and the 10-year bond yield around 0%. It also buys risky assets such as ETFs as part of efforts to fire up economic growth and inflation.

($1 = 108.8400 yen)

(Reporting by Leika Kihara; Additional reporting by Kaori Kaneko; Editing by Chang-Ran Kim and Ana Nicolaci da Costa)