BOJ's Kuroda stresses need to keep bond yields 'stably low'

© Reuters. FILE PHOTO: Bank of Japan Governor Haruhiko Kuroda wearing a protective face mask attends a news conference as the spread of the coronavirus disease continues in Tokyo

By Leika Kihara

TOKYO (Reuters) – Bank of Japan Governor Haruhiko Kuroda said on Friday the central bank must ensure long-term interest rates are kept stably low as the coronavirus pandemic keeps the economic outlook highly uncertain.

Markets are rife with speculation the BOJ will widen an implicit band at which it allows 10-year government bond yields to move around its 0% target to 60 basis points from 40 points currently.

Kuroda said the BOJ has not reached a conclusion yet on whether it will widen the band, saying “much more debate” was needed before deciding at the March review of its policy tools.

“It’s a difficult decision. The economy remains under pressure from the COVID-19 pandemic,” Kuroda told parliament.

“While we need to enhance bond market functions, it’s important to keep the yield curve stably low for the time being,” he said.

At the March review, the BOJ will also look at ways to make its purchases of exchange-traded funds (ETF) more flexible.

“We have been and must continue to buy ETFs flexibly. We’ll discuss at the March review how specifically we could make our purchases more nimble,” he said.

Under yield curve control, the BOJ guides short-term 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 inflation to its 2% target.

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With the pandemic forcing it to maintain a massive stimulus programme longer than initially expected, the BOJ will conduct a review of its policy tools at its March 18-19 meeting to make them “more sustainable and effective.”

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