Bank of Japan Governor Haruhiko Kuroda has resisted calls to loosen the reins on long-term interest rate targets, stressing the need to keep borrowing costs low to support a pandemic-ravaged economy.
The BoJ caps the 10-year bond yield at around zero under a policy dubbed yield curve control (YCC) and currently allows the benchmark yield to move 40 basis points around the target.
But the markets had been rife with speculation the BoJ could widen that band and allow yields to move higher.
"It's something we will discuss at the [March] review. But I don't think it's necessary or appropriate to sharply widen the band," Kuroda told parliament on Friday.
"We need to keep the yield curve stably low as the economy is still suffering from the Covid-19 pandemic,” he said. "I don't think we need to widen the band."
Kuroda's remarks briefly sent yields on 10-year Japanese government bonds to a nearly three-week low of 0.07%, before recovering to 0.09%.
Expectations of a strong post-pandemic recovery have pushed up global yields including those for Japan, where the 10-year yield has briefly crept near the BoJ's implicit 0.2% ceiling.
"The roll-out of vaccines is encouraging but there's still very high uncertainty over the pandemic and its impact on the economy," Kuroda said.
Kuroda also highlighted climate change as one of the key themes in guiding the country’s monetary policy, but didn’t touch on the idea of the central bank buying green bonds.
He said there were "many issues" that needed to be cleared for the BoJ to target green bonds, such as how they would clash with the bank's principle of buying assets in a manner neutral to markets.
"Climate change is among the crucial factors affecting the economy and financial system," he said. "In that context, there are ties to the central bank's mandate."
- Reporting by Reuters