At today’s monetary policy meeting, the Bank of Japan’s Policy Board decided to increase flexibility in controlling the yield curve. Specifically, while the bank will maintain its target level for Japanese 10-year government bond yields (JGBs)
Around zero percent, it will control the yield curve with the upper limit of 1.0 percent for these yields as a reference and will control yields mainly through large-scale Japanese government bond purchases and smart market operations. In this way, the bank will patiently continue to deal with cash.
The first sentence makes them look like a clingy ex-partner who can’t give up any reference to 0% returns that make them look like this.
The upper limit of 1% seems to be something they want to stick to as well. But maybe they will be bypassed, so now it’s just a reference. I suppose the phrase “patiently” sums up the facilitation they make, but since they are a herd of elephants in the room, “smart market operations” are also from the land of La La.
Put all this another way, when I saw the leak of the Nikkei, I thought the important move would be to move the cap to 1.25%. In fact, with moves over the summer and autumn 1.5% would be more realistic but we’re looking forward to the Bank of Japan. While its alleged efforts to move away from YCC make it really look like this.
There is another element in politics and we see that the Bank of Japan seems unable to even think about changing this. The Bank will apply a negative interest rate of 0.1% on current account interest rate balances held by financial institutions with the Bank. As of this morning, it was celebration time with higher returns but at the same negative cost.
The impact of the Japanese yen policy adjustment on global markets
The Bank of Japan (BOJ) made a dovish adjustment to its yield curve control (YCC) policy, weakening the Japanese yen (JPY) against G10 and Asian currencies. The adjustment has increased flexibility by setting a 1.0% upper limit on the yield range of Japanese 10-year government bonds as a reference and not a maximum. These come The move amid Wall Street’s overnight gains sparked risk appetite in the market.
Market participants are now keeping a close eye on the Bank of Japan’s next decision, which could send Japanese government 10-year bond yields above 1%. RBC Capital Markets expects this potential policy adjustment to be reflected already in market responses. Moreover, they wonder if such another adjustment could affect the USD/JPY rate, given the large disparity between US and Japanese . It’s a complete fantasy, but it looks good until people realize the reality of massive capital losses.
Following these developments, USD/JPY and EUR/JPY rose 0.2% to 149.40 and 158.51 respectively. The Bank of Japan’s decision to leave the interest rate on excess reserves (IOER) unchanged while removing the 1.0% ceiling on YCC, led analysts to expect bank issuances to be bought in hopes of improving profits after the Bank of Japan’s decision raised the prospect of raising interest rates. Mizuho Financial Group rose 33.5 yen or 1.3 percent, to 2,545.5 yen, while Mitsubishi UFJ Financial Group rose 27 yen, or 2.2 percent, to 1,257 yen. Possible formal removal of the YCC mechanism due to uncertainty over the Bank of Japan’s intervention in the Japanese government bond market .
Bank of Japan mulls adjustment of revenue curve control framework
Early this morning, all eyes were on Tokyo as investors waited for the Bank of Japan policy announcement. It’s a busy week for the central bank with the US and then the Bank of England, but the Bank of Japan has also sped things up with this.
The Bank of Japan is set to consider a further revision to the yield curve control framework (YCC) at its monetary policy meeting on Tuesday, which could allow Japanese 10-year government bond yields to rise above 1%, sources close to the matter told Nikkei. So it leaked to the Nikkei which appears to be a copy of the Wall Street Journal Nick Timeros that acts as the Fed’s “mouth.” Then the current situation was summed up.
The long-term interest rate currently has a maximum of 1%, with the central bank making unlimited purchases at a fixed rate to keep yields below this level. This ceiling was introduced in July to replace the previous ceiling of 0.5%.
The markets were impressed by this as the Japanese yen rose to 149 which meant that we had another form of intervention in the foreign exchange market but this time through open operations instead of selling the US dollar. For those who can remember since July, there was a cautionary note, as while it was announced that yields were eased to 1% on yield curve control, we have not yet reached 0.9% after a few months.
On the second of this month, I noticed a letter from Governor Ueda where he explained that the Bank of Japan calculates profits (if you buy bonds of 0.85% and bear yourself -0.1, you will receive an interest profit
Japan-US interest rate hikes weigh on markets
The U.S. dollar rose above the 150-yen threshold in Tokyo on Tuesday after the market considered the Bank of Japan’s decision to adjust its maximum yield policy as just a minor change in monetary easing policy.
Stocks closed higher, led by bank purchases and other financial issuances on expectations of higher interest rates after the Bank of Japan revised its yield curve control framework, allowing Japan’s 10-year government bond yields to rise above 1.0 percent.
The 225-issue Nikkei stock index rose 161.89 points, or 0.53 percent, from Monday to 30,858.85. The broader Topix index closed up 22.48 points, or 1.01 percent, to 2,253.72.
In the top-tier main market, insurance, agriculture, fisheries and food stocks led gainers.
The yield on Japan’s benchmark 10-year government bonds briefly reached 0.955% in the morning, its highest level in nearly 10 years and five months, as market participants sold debt after a report signaling a change that allows long-term yields to rise. Over 1.0% will be discussed at the Bank of Japan policy meeting. Bond yields move inversely with prices.
The yield ended at 0.950 percent, up 0.060 percentage points when it closed on Monday after the Bank of Japan announced it would adjust its yield curve controls. Although the central bank’s adjustment was in line with market expectations, selling did not accelerate in the afternoon.
The euro traded at $1.0620-0622 and 159.60-64 yen versus 1.0610-158.17-158 yen in New York and 1.0556-1557-157.82-86 yen in Tokyo late Monday afternoon.
The yen weakened against the dollar amid the prospect of higher interest rates between Japan and the United States, as the Federal Reserve tightened monetary policy to curb inflation.