Bank of Japan Gov. Haruhiko Kuroda is starting to convince bond investors he can revive inflation without extra monetary easing.
The debt market’s inflation expectations for the coming decade are starting to tick higher following a six-month slide, even after the central bank defied rising conjecture among analysts for more stimulus by leaving policy settings unchanged, Bloomberg reported.
The yield curve suggests buyers have been unwinding bets that the BOJ will expand purchases of long-term debt, while a measure of market volatility declined to the lowest in more than a year.
What Kuroda has done is focus attention away from the core consumer-price index, which is used to measure progress toward its 2% inflation target, and which languished below zero for a third month in October. The BOJ began publishing an alternative gauge that strips out both fresh food and energy prices, and which showed inflation rose at a 1.2% clip for a second month. The core index only strips out food prices.
“With the BOJ publishing its own consumer-price index while stressing the importance of looking at a variety of indicators, it’s starting to win market participants over,” said Makoto Suzuki, a senior bond strategist at the Japanese brokerage. “That core CPI is negative is not really a big deal, though the central bank is still far from reaching its target.”
Okasan Securities predicts long-term Japanese government bond yields will remain depressed as the BOJ continues its unprecedented asset-purchase program, which has scope to buy every new bond the government issues.
Yields on 10-year securities have touched 0.295% on three occasions in the past month, a level last seen in April. They were at 0.3% on Monday in Tokyo, the lowest globally after Switzerland. Central bank quantitative easing helped push yields to a record low of 0.195% in January.
The 10-year break-even rate—a market gauge of inflation expectations derived from a yield gap between nominal and index-linked bonds—reached a one-month high of 0.83%, climbing from a nine-month low of 0.74% reached Nov. 12.
Industrial Output Rises
Japanese industrial production rose 1.4% in October from the previous month, government data showed Monday, as exports show signs of stabilizing while domestic spending remains anemic going into the fourth quarter.
The figure compares with a 1.9% increase expected by economists surveyed by The Wall Street Journal and the Nikkei, and follows a rebound of 1.1% in September.
The data follows a mixed bag of economic indicators in the first month of 2015’s final trimester, on the heels of a soft patch in the last two quarters. In October, exports scored the first month-on-month increase in four months, while private consumption posted a second straight on-month fall.
The ministry kept its assessment of industrial production unchanged saying it was “trending sideways.”
