A rise in long-term nominal government bond yields in a major overseas economy may exert upward pressure on the government bond yields in Japan. The upward force may work against the downward pressure maintained by QQE, potentially weakening the effectiveness of monetary policy and leading to greater volatility in long-term nominal and real interest rates.
Yet, even in the phase of intensified upward pressure, the continuation of the Bank’s large-scale asset purchases is likely to maintain the downward pressure – in addition to the forward guidance applied to QQE. As long as the rising pace of long-term interest rates is more moderate than that of inflation expectations, real interest rates are likely to remain at low levels.