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What could Change under BOJs March Policy Review?

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TOKYO, Feb 3 Reuters The Bank of Japan is conducting a review of its policy tools to make them more sustainable, as the hit to the economy from the coronavirus is seen prolonging the battle to achieve its elusive 2 inflation target.

It will release the findings in March.

Below are some options likely to be discussed by BOJ policymakers, or being floated by markets as a possibility

TWEAK GUIDANCE ON ETF PURCHASES HIGHLY LIKELY

Wary of its ballooning holdings of risky assets, the BOJ wants to give itself more flexibility in tapering purchases of exchangetraded funds ETF when markets are calm.

Doing so would leave the BOJ with more scope to ramp up buying when market turbulence threatens Japans economy.

The BOJ may tweak its current pledge to buy ETFs by up to 12 trillion yen 114 billion per year, and replace it with a more vague guidance. Opponents of the move are worried about the risk of triggering a stock market selloff.

FINETUNE OPERATION OF YCC HIGHLY LIKELY

The BOJ has been successful in keeping interest rates boxed in a tight range under yield curve control YCC but perhaps too much with its huge presence drawing criticism for drying up market liquidity and distorting pricing.

To address such concerns, the BOJ will find ways to let market forces drive bond prices such as by widening the implicit range it sets around the 0 target for 10year bond yields.

It could also introduce steps to prevent superlong yields from falling too much, such as by reducing…

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