Japan to extend fuel subsidies until April next year as inflation accelerates
Business
BOJ goes for bond-buying operation to slow a rise in government bond yields
TOKYO (Reuters) – Japan's government will extend until the end of April next year subsidies aimed at curbing fuel prices, according to a draft of the government's economic stimulus package reviewed by Reuters on Tuesday.
The government will also extend until the spring of 2024 subsidies to curb utility bills, the draft showed.
PRICE TREND GAUGE HITS RECORD
A key measure of Japan's trend inflation accelerated to 2 per cent in September, hitting a record and matching the central bank's target, data showed on Tuesday, heightening the case for dialling back its massive monetary stimulus.
The data adds to recent growing signs of broadening inflationary pressure in the world's third-largest economy, which had been mired in decades of price stagnation.
The 2.0pc year-on-year increase in the weighted median inflation rate, which is closely watched as an indicator on whether price rises are broadening, compared with a 1.8pc gain in August. It marked the fastest pace of rise since comparable data became available in 2001, Bank of Japan (BOJ) data showed.
The outcome will likely be among factors the BOJ board will scrutinise in producing fresh inflation forecasts at a two-day policy meeting ending on Oct 31.
Sources have told Reuters the BOJ is likely to revise up its inflation forecasts and may debate raising a cap on long-term interest rates next week, as rising inflation and US Treasury yields push up Japanese yields.
The BOJ remains a global dovish outlier, having maintained ultra-loose policy even as major central banks elsewhere raised interest rates aggressively to fight rampant inflation.
While the core price gauge has exceeded its target for more than a year, the BOJ has pledged to keep ultra-low interest rates until 2pc inflation can be achieved on a sustained manner backed by solid consumption and wage increases.
The weighted median is the inflation rate of items at the middle of the price changes, or around the 50th percentile point of the distribution.
After hovering around zero for the past two decades, it began creeping up last year reflecting a wave of price hikes by companies passing on surging raw material costs.
Unlike the consumer price index (CPI) which is swayed by fuel and energy costs, the weighted median inflation rate is useful to trace how broadly prices are rising and is closely watched by the BOJ for clues on the broad price trend.
UNCHEDULED BOND-BUYING OPERATION
The BOJ announced an unscheduled bond operation on Tuesday, as it sought to slow a rise in Japanese government bond (JGB) yields that had brought them to fresh decade highs.
Japan's central bank offered to buy 300 billion yen ($2.00 billion) in bonds with maturities of five to 10 years and 100 billion yens worth with maturities of 10-25 years from Wednesday.
That was in addition to its daily offer to buy an unlimited amount of JGBs at a fixed rate of 1pc.
Following the BOJ's announcement, the 10-year JGB yield declined 0.5 basis point to 0.855pc, earlier trading unchanged from Monday's closing level of 0.86pc, which was the highest since July 2013.
Japanese yields have been pulled higher by a surge in US Treasury yields, with the benchmark 10-year note topping 5pc overnight to reach a 16-year high.
The BOJ caps the 10-year yield at 1pc under its yield curve controls (YCC), following a surprise policy tweak at the end of July. Although the yield remains well below that level, policymakers have stepped in repeatedly to slow the pace of increases.
