TOKYO (Reuters) - Bank of Japan board member Ryuzo Miyao said on Tuesday it was vital to keep long- and short-term interest rates stable but offered no new prescriptions to contain the recent bond market turmoil that has threatened to undercut the central bank’s massive easing campaign.
The former academic said rises in Japanese stocks and U.S. long-term interest rates have contributed to the recent rise in Japanese bond yields.
“What matters is to ensure that long- and short-term interest rates as a whole will follow a stable path,” Miyao told a news conference in Tokyo.
But in terms of what the BOJ can do, Miyao reiterated the central bank’s stance that it will fine-tune market operations and enhance communication with market participants.
He also voiced confidence that the central bank’s aggressive monetary stimulus will help offset any rises in long-term rates that reflect expectations of an economic recovery in Japan.
“Even when there is upward pressure on long-term interest rates due to expectations for economic recovery, monetary policy will continue to put downward pressure on interest rates and therefore strongly support economic recovery,” said Miyao, the longest serving member of the board.
The BOJ unleashed the world’s most intense burst of stimulus last month, promising to inject $1.4 trillion into the economy in less than two years to meet its pledge of achieving 2 percent inflation in roughly two years.
Last week, the benchmark 10-year bond yield rose above 1 percent, touching the highest level in a year. This rise contributed to the biggest plunge in Japanese shares in two years, market participants said, casting a cloud over the effectiveness of the BOJ’s monetary easing that aims to push down borrowing costs and brighten market sentiment.
A decline in bond prices would hit the balance sheet of many Japanese banks that have heavily loaded up on bonds, and increase the cost of financing Japan’s huge debt pile, already the biggest in the developed world at more than double the size of its economy.
Additional reporting by William Mallard; Editing by Shinichi Saoshiro & Kim Coghill