Citing Takeo Hoshi, an academic with close ties to incumbent central bank policymakers, Reuters reported on Tuesday, the Bank of Japan (BoJ) could do away with its 10-year Japanese government bond (JGB) yield cap in 2023 on increasing odds that inflation and wages will exceed expectations.

Key takeaways

“The BOJ must maintain an ultra-loose policy for the time being to convince the public that it is serious about reflating the economy long enough to generate sustained inflation.”

“With inflation expectations already "sufficiently" high, core consumer inflation could exceed the BOJ's 2% target next fiscal year, and open scope for the central bank to abandon its 0% target for the 10-year bond yield.”

"Prices didn't rise much in Japan in the past, but that's changing. Japan might enter an era of high inflation. The BOJ must start worrying about the possibility of inflation accelerating more than expected."

Market reaction

USD/JPY was last seen trading 0.17% lower at 136.50, undermined by the latest leg down in the US Dollar across the board in tandem with the Treasury bond yields.