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. Last Updated: 07/27/2016

BOJ Tweaks Economic Assessment




TOKYO -- The Bank of Japan made a tiny but key change in its assessment of the economy Wednesday, rocking markets with fears that the central bank would tighten its ultra-easy monetary policy sooner rather than later.


Long-term interest rates and the yen surged, snuffing out an early stock market rally after BOJ Governor Masaru Hayami added the modifier "clearly" to the central bank's oft-repeated view that the economy has stopped declining.


The market was also unnerved when Hayami, in semiannual testimony to the lower house finance committee, said the present zero interest rate policy could not go on forever and that he wanted to avoid any mistake in choosing the timing for the BOJ's "next step" on monetary policy.


But even as the central bank tweaked its assessment, the government released weak data on housing and construction that seemed to contradict recent bullishness that the world's second-biggest economy was starting to pull out of its worst postwar slump.


"Presently, we are able to judge that the economy has clearly stopped deteriorating," Hayami said, reading from a prepared BOJ statement, although minutes later he restated the BOJ's more cautious official assessment.


He also reiterated that the BOJ would maintain its zero-interest rate policy until an end of deflationary fears was in sight, adding that downward pressure on prices remains.


For good measure, the BOJ's top career official, Deputy Governor Yutaka Yamaguchi, said that Hayami's statement did not represent a change in economic assessment or policy judgment.


The bond market nonetheless pounced on the changed wording, immediately sending long-term interest rates soaring.


The key 10-year Japanese government bond yield spiked more than 0.1 percentage point higher at one stage to clear 1.9 percent for the first time in three months.


"The market was spooked by Hayami, as it has been very jittery about a possible economic turnaround resulting in higher interest rates," said a bond trader at a Japanese brokerage.


The Japanese currency climbed as much as half a yen, despite concerns that the BOJ may again step in to curb the yen's climb.