Ex-BoJ’s Shirai: BoJ may raise yield target in small step toward normalization

Former Bank of Japan (BoJ) board member Sayuri Shirai said in an interview with Reuters, the BoJ is likely to embark upon a gradual normalization mode later this year by raising its long-term interest rate target and slowing asset purchases further.

Key Quotes:

“BOJ policymakers probably want to raise the bond yield target and slow purchases of assets like government bonds and exchange-traded funds (ETF).”

“They want to do this in the not too distant future. Their hope is to argue that this is not a full-blown normalization but only a small step toward that direction. Last week’s move was aimed at making that distinction clear.” 

“If you feel it will take time to achieve your target, you want to seize the right opportunity to prepare yourself with ammunition to fight the next recession.”

“The BOJ can do this only when the U.S. economy is doing well and the Federal Reserve is hiking rates steadily,” which deters an unwelcome yen spike against the dollar.