Wed. Feb 1st, 2023

Regulation HK

Financial Regulator

BOJ Seeks Greater Control Over Yield Curve With Rule Change

2 min read

Under the revised rules, the BOJ can provide FIs both fixed and variable-rate loans across a range of tenors up to 10 years.

The BOJ (Bank of Japan) has amended the rules for its funds-supply market operation, to improve its ability to control interest rates.

Under the revised rules, the BOJ can provide fixed and variable-rate loans with a maximum term of 10 years, using collateral from financial institutions.

Before the amendment, the BOJ could only offer funds for ten years as fixed-rate loans. Experts believe that by incorporating variable-rate loans, the central bank can use the funds-supply operation to shape the yield curve.

According to Reuters, the BOJ stated that it would determine the interest rate for each loan to encourage the formation of a yield curve consistent with its market operations guidelines, and that it would consider the market prices of Japanese government bonds for each maturity.

Following the announcement of the new rules, the BOJ said that it would offer five-year loans under the funds-supply operation for four years starting on 24 January. Five year loans will help the BOJ push down five-year swap rates.

The rule change for the funds-supply operation was announced in tandem with the BOJ’s decision on Wednesday (28 January) to make no changes to its yield curve control policy.

The BOJ’s yield targets continue to be set at -0.1% for short-term interest rates and around 0% for 10-year yields. Trading is allowed trade to fluctuate 50 basis points above or below these targets after a policy adjustment last month.

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