Governor Kuroda may hope to hand the existing yield curve control (YCC) framework to the new governor. The macro backdrop supports unchanged policy settings, but miscommunication leaves the Bank of Japan (BoJ) open to further market challenges.
  • The BoJ’s attempt to manage market distortions in December swiftly backfired. Dislocations were exacerbated. 
  • The current framework is likely to be handed to the new governor in April, however, intense market pressure raises the risk of further adjustments or abandoning yield curve control altogether. 
  • From a macro perspective the BoJ needs evidence of stronger wage growth to ensure inflation can sustainably achieve central bank target. 
  • Governor Kuroda’s press statements opened the door to the possibility of further policy adjustments and will likely fuel further bouts of market volatility amid speculative attacks on the trading band in the coming weeks. 
  • Key triggers for market pressure include inflation prints, the announcement of a new governor, “Shunto” wage negotiations and global economic backdrop. 
  • Longer-term easing of global inflation drivers, and recession across advanced economies will likely reduce inflation pressures in Japan.