Jiji Press TOKYO (Jiji Press) — The Bank of Japan is on alert for further declines in long-term interest rates following their slide to a three-year low earlier this week amid concerns about U.S.-China trade tensions.
In Japanese government bond trading in Tokyo Tuesday, the yield on the benchmark 10-year issue briefly fell below 0.2 percent, a level considered the lower limit by the central bank.
If the yield drops further, the BOJ is expected to refrain from purchasing JGBs at certain yield levels in its market operations or reduce the amount of JGBs it buys, analysts said.
But such moves could narrow gaps between interest rates in Japan and abroad and lead to the yen’s further rise against other major currencies, pundits said.
In addition, a reduction in the BOJ’s JGB purchases at a time when the central banks in Europe and the United States are moving to ease their monetary policies could be regarded as taking a negative stance on easing and push the yen higher, they said.
Another possible scenario is that the BOJ will tolerate further yield declines.
At a press conference in Kagoshima last week, BOJ Deputy Gov. Masayoshi Amamiya said that it would be possible for the central bank to widen the targeted yield scope in the event that long-term interest rates fall sharply.
If the BOJ allows the yield to keep falling, however, domestic financial institutions’ earnings could be squeezed further. Pension funds and life insurance firms may face further difficulty in their asset management, market sources said.Speech