One of the more interesting headlines to start the year was sparked by the BoJ. Last week, in a clear communication attempt with markets, Bank of Japan sources told Reuters the BoJ is beginning to brainstorm a future exit plan from its extremely accommodative monetary policy setting. This even included discussions about an eventual interest rate hike. Since the start of 2022, 10y JGB yields have moved 10bps higher. This may seem trivial relative to the selloff we have seen in 10y UST yields, however, 10y JGBs are pegged at 0-20bps and they are now beginning to trade near the upper end of their band.
Another element of why this BoJ leak was so interesting was that it was not completely out of the blue. Looking back at BoJ rhetoric even since the start of December, there were already signs that things were starting to change inside the central bank. Or at least that the BoJ was ready to open itself up to more policy optionality. Arguably the two most important voices on the BoJ spoke recently and echoed things that were certainly different from what the bank has said in the past. Gov. Kuroda said toward the end of last month that inflation may approach its 2% target. Deputy Gov. Amamiya said at the beginning of December that inflationary pressures were gradually growing with more companies being able to pass on costs to consumers.
So, the BoJ has shifted a bit. From here there are two questions:
1) What are its next steps?
2) What are the cross-border consequences of this shift?