According to three-quarters of economists polled by Reuters, the Bank of Japan is likely to maintain its yield curve control policy until at least next year, as expectations of a near-term change in monetary policy by new governor Kazuo Ueda diminish.

At its first monetary policy meeting in April, Ueda left the central bank’s ultra-low interest rates unchanged, citing a lack of confidence in the prospects for achieving its 2% inflation target, and announced a “review from a broad perspective” of past policies.

In the survey, however, more than half of analysts expected the BOJ to start tapering its easing plan before the end of July, with measures such as extending the yield ceiling or shortening the target maturity to mitigate the side effects of the yield curve control policy.

Only six out of 24 economists, or 25%, said the BOJ would end the yield curve control policy this year, according to the May 17-24 survey, well down from 56% in the April survey. Five (21%) predicted it would occur in the first half of 2024, six (25%) opted for the second half of 2024 and another five chose “2025 or later.”

“With increasing uncertainty surrounding the global economy, the risks involved in a drastic policy change are not small,” said Takumi Tsunoda, chief economist at the Shinkin Central Bank Research Institute. Tsunoda believes the BOJ will adjust the yield curve control policy to correct bond market distortions and maintain the policy until early 2024.

Two economists (8%) even believe that “the BoJ will not end the yield curve control policy,” an option neither selected in the April and March surveys.

According to Norihiro Yamaguchi, chief Japan economist at Oxford Economics, the yield curve control policy “will be maintained as a safeguard against a possible overshooting of yields” during the BoJ’s multi-year process of normalizing quantitative easing.

Economists Divided on Timing of BOJ’s Tapering Amidst Economic Uncertainty

Meanwhile, 10 out of 24 economists (42%) said the BOJ will start tapering its ultra-loose policy in July, followed by four (17%) who expect the change even earlier, in June.

“July could be the last chance before the U.S. economy heads into a recession later this year, making it difficult for the BoJ to revise the yield curve control policy,” said Nobuyasu Atago, chief economist at Ichiyoshi Securities.

Asked what the BoJ would do if it had to change the yield curve control policy before-or instead of-ending it, 57% of economists predicted a widening of the tolerance range around the 10-year yield target, while 43% opted for a shift from the control target to shorter-term bond yields.

Compared to last month, a higher percentage of respondents expected the former option this time.

Economists’ forecasts for the timing of the end of the BOJ’s negative short-term interest rate policy remained virtually unchanged from the April survey: 38% expect it to occur in the second half of 2024 and 42% project it for 2025 or later.

According to Mari Iwashita, chief market economist at Daiwa Securities, the ideal time to dismantle the negative rate policy would be after the conclusion of the “comprehensive outlook review,” which Ueda said would take between a year and a year and a half, as well as after the next cycle of rate cuts in the United States.

In another part of the survey, which asked about the potential impact on BOJ policy if the U.S. defaults on the debt ceiling, 11 of 21 respondents (52%) expected a delay in the central bank’s withdrawal of ultra-loose easing.

“If the U.S. default were to actually occur, the impact would be unfathomable: the BoJ, if it does not carry out additional easing measures, should pause for a while to monitor how events unfold,” said Atago of Ichiyoshi.

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