Bank of Japan revises yield curve control (YCC) policy

The Bank of Japan has removed the stringent cap on government bond yields.

The yen experienced a sharp decline against the dollar, with the dollar reaching a new high of 150.80 this year.

At the conclusion of the two-day meeting that ended on Tuesday, the Bank of Japan, as anticipated, kept the monetary policy parameters the same, leaving the interest rate and target yield level of 10-year Japanese government bonds (JGB) at -0.1% and 0%, respectively.

Interfax reports that the regulator has chosen to adopt a more flexible stance towards variations in the yield of 10-year government bonds.

The Bank of Japan announced in a statement that the 1% yield cap will now be used as a guide rather than a strict limit for government bond yields, as opposed to the previous guideline of a range of plus/minus 0.5% per annum.

In a statement, the Bank of Japan declared that the regulator "will mainly manage yields through extensive buying of JGBs and flexible market operations."

At a press conference, Kazuo Ueda, head of the Central Bank of Japan, stated that they are collaborating with the government to keep an eye on the Forex market and can control speculative activities in the market through flexible market operations.

Capital Economics believes that the Bank of Japan has given up its strategy of altering the yield curve, and Central Bank authorities could potentially terminate negative rates as soon as January.

The Bank of Japan has increased its inflation projection, predicting that core consumer prices (excluding fresh food) will reach 2.8% in the fiscal year ending March 2024, compared to the earlier forecast of 2.5%.

It was initially thought that inflation would decrease to 1.9% in the upcoming fiscal year, however, it is now predicted to stay at 2.8%.

MarketWatch reported that on Tuesday morning, the yield on 10-year Japanese government bonds hit a new high of 0.955%, the highest since May 2013.

Following strong inflation data, the Bank of Japan's 10-year bond yield ceiling was expected to be raised to 1.25% from 1% by some experts. This likely caused the yen to sharply weaken.