Unwinding the Policy - Japan’s Yield Curve Control

Published on 22 Dec, 2023

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The Bank of Japan (BoJ) has been using the yield curve control (YCC) as a monetary policy tool since September 2016 to maintain stability in the Japanese government bond market and achieve a consistent inflation rate of 2%. However, following the announcement of the October policy allowing the reference rate to rise to 1%, speculation has intensified, resulting in increased volatility in Japanese government bonds. This has led to discussions within BoJ about further potential YCC adjustments, as the bank could allow bond yields to cross 1% but at a monitored pace. This has triggered speculation about the potential end of YCC, which could lead to disruptions in sovereign bond yields, affect the Yen’s strength, and impact the performance of Japanese equity indexes.