BOJ governor’s yield flexibility sets up market test amid a dovish tide

Bloomberg

As peers in the US and Europe take a dovish turn, Bank of Japan (BOJ) Governor Haruhiko Kuroda signalled he’s unfazed as bond yields in his own country get caught up in the global shift lower.
“There is no need to be extremely and strictly mindful about a concrete range for the rate” on Japan’s benchmark 10-year bond yield, Kuroda said. The BOJ targets that rate to be about 20 basis points plus or minus zero. His flexibility egged on buyers, with the yield pushing as low as minus 0.18 percent as he spoke during an afternoon news conference.
The market is likely to test just how flexible Kuroda is in the days and weeks ahead. “The BOJ is trying to secure a free hand,” said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co. “But it’s gradually becoming more difficult because other central banks, namely the Fed and ECB, are indicating they will act and they have measures to do so, whereas the BOJ’s toolbox is nearly empty.”
The BOJ kept its benchmark interest rate at -0.1 percent and 10-year yield target at around 0 percent earlier in the day. Hours before that, the Federal Reserve followed the European Central Bank in signaling a willingness to cut rates in the face of rising threats to global growth.
Almost 5,000 miles to the south in Adelaide, Reserve Bank of Australia Governor Philip Lowe reiterated that it was “not unrealistic” to expect another rate cut there. The quarter-point reduction to a record-low 1.25 percent this month was unlikely to “materially shift” the current trajectory of slower economic growth and static unemployment, Lowe said in a speech.
Indonesia’s central bank signaled it’s ready to cut rates after adding stimulus to the economy by lowering reserve limits
for banks. But economists’ expectations for a cut in the Philippines were dashed as the central bank held rates steady after inflation quickened last month. In Taiwan, the central bank kept its benchmark rate unchanged as expected.