Pimco’s Clarida: BOJ May Scrap Yield Control
The Bank of Japan (BOJ) may scrap its yield control policy later this year, according to Pimco’s global strategic advisor Richard Clarida. Clarida, who is also the vice chairman of the US Federal Reserve, said that the BOJ could move away from its current policy of capping yields on 10-year government bonds at around zero percent.
The BOJ has been using yield control since 2016, when it adopted a negative interest rate policy. The policy was designed to stimulate the economy by encouraging borrowing and investment. However, the policy has been criticized for its lack of effectiveness and for creating distortions in the bond market.
Clarida said that the BOJ could move away from yield control as early as this year. He noted that the central bank has already taken steps to reduce its bond purchases, which could be a sign that it is preparing to end yield control.
He also said that the BOJ could move to a more flexible policy, such as targeting a range of yields rather than a single rate. This would allow the central bank to respond more quickly to changes in the economy.
Clarida also noted that the BOJ could use other tools to stimulate the economy, such as increasing the money supply or cutting interest rates. He said that the central bank could also use fiscal policy, such as increasing government spending, to boost growth.
The BOJ has been reluctant to move away from its current policy, as it fears that doing so could lead to a sharp rise in long-term interest rates. However, Clarida said that the central bank could use other tools to manage the transition.
He noted that the BOJ could use forward guidance to signal its intentions to the market, or it could use its balance sheet to buy bonds and keep yields low. He also said that the central bank could use its foreign exchange reserves to buy foreign bonds, which would help to keep yields low.
Clarida said that the BOJ could also use its monetary policy to support the economy. He noted that the central bank could cut interest rates or increase the money supply to stimulate growth.
Overall, Clarida said that the BOJ could move away from yield control later this year. He noted that the central bank could use other tools to manage the transition and to support the economy. He also said that the BOJ could use fiscal policy to boost growth.