TOKYO (Reuters) – Two thirds of Japanese firms expect the Bank of Japan to curb rises in long-term interest rates and keep them steady, a Reuters poll found, ahead of the central bank’s review this week on how it will make its stimulus policy more sustainable.
Bond yields have risen around the world on investor bets that central banks will raise interest rates sooner than they have signalled to contain inflation. The spike is jeopardising the BOJ’s efforts to cap 10-year yields at zero under its yield curve control policy, as the COVID-19 pandemic makes its 2% inflation target even more difficult to achieve.
One of the aims of the BOJ’s review of its policy tools is to allow market forces to drive bond prices more and to revive a market made dormant by heavy money printing — without triggering a jump in yields that could hurt the fragile economy.
The BOJ has maintained a massive and prolonged stimulus programme to drive the world’s third-largest economy out of decades of stagnation. It has vowed to use more monetary firepower if the pandemic threatens a return to deflation.
The monthly Corporate Survey, conducted March 3-12 for Reuters by Nikkei Research, found only 16% of Japanese firms saw the need to make the BOJ’s bond yield target more flexible.
The poll canvassed 482 large and medium non-financial firms, of which around 210-230 responded on condition of anonymity.
A third want the BOJ to keep long-term rates steady and another third want it to curb rises in bond yields — with many concerned about rises in borrowing costs, according to the poll.
“We assume a relatively long time to repay money we borrow for capital spending,” a manager of a transportation company wrote in the survey. “We want to avoid interest rate hikes.”
Half of Japanese firms want the BOJ to maintain its current programme on buying exchange-traded fund (ETFs), more than a quarter call for more flexible purchases and one-fifth wants to reduce them.
Only 2% proposed more ETF purchases by the central bank.
“BOJ’s ETF purchases will cause stock prices to rise, paving the way for a bubble,” wrote a machinery maker manager.
“Share prices have already risen sufficiently. There’s no need for the BOJ to buy more to underpin the share prices,” wrote an electrical machinery maker manager.
In the survey, a slim majority of firms urged the central bank to keep monetary policy unchanged for the time being, while the remainder were split between more easing and an exit from stimulus.
Some companies echoed market views that monetary stimulus has been stretched and further easing would do more harm than good.
“I think it’s enough. Further easing could raise worry about inflation, which would cause negative effects,” wrote a retail manager. A transportation manager wrote: “It’s abnormal to keep current emergency steps forever. We need to mull exit as well.”
(Editing by Jacqueline Wong)