BoJ raises ceiling for JBG yields but cuts medium-term inflation forecasts

Rate-setters in Japan did indicate they would tolerate slightly higher levels of long-term interest rates, as expected, even as they lowered their medium-term forecasts for inflation in Asia's second-largest economy.

In his press conference following the Bank of Japan's policy meeting, governor Haruhiko Kuroda appeared to indicate that the yield on the benchmark 10-year Japanese government bond (JGB) would now be allowed to rise as high as 0.20%, versus a prior ceiling of 0.10%.

However, policymakers also introduced a degree of forward guidance by stating that policy rates would remain at an "extremely" low level "for an extended period of time".

They also cut their forecasts for inflation for fiscal years 2018 to 2020, from 1.3%, 1.8% and 1.8% to 1.1%, 1.5% and 1.6%, respectively.

In reaction to Kuroda's announcement, the yield on the benchmark 10-year JGB retraced a part of its initial fall but as of 0822 BST was again trading five basis points lower at 0.06%, just above the intra-session low of 0.05% it had plumbed just after the BoJ announced its policy decision.

To take note of, yields on similarly-dated US Treasuries were also lower, trading down by three basis points to 2.95%.

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