The Bank of Japan (BOJ) is edging towards an early rate hike, but it faces growing risks that any move to tighten policy will be offset by mounting political pressure to support the bond market. As government spending plans drive yields higher, the BOJ is being drawn into an increasingly awkward battle to defend its push to normalize policy and resist calls to resume bond-buying.
Concerns Over Bond Yields
Concern over Prime Minister Sanae Takaichi’s expansive fiscal agenda has pushed Japanese government bond yields higher, raising borrowing costs for a country with the developed world’s heaviest debt burden. The 10-year Japanese government bond yield rose to 2.805% on Monday, moving closer to the 3% level that some analysts see as a trigger for a new wave of selling.
The BOJ has stressed it would step up bond purchases only through emergency operations if yields rise in a disorderly manner that is disconnected from economic fundamentals and threatens financial stability. However, some analysts say such pressure may already have influenced policy, pointing to the BOJ’s decision in June to pair a rate hike with a suspension of its bond-taper plan from next fiscal year.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
