Nikkei: At its monetary policy meeting Tuesday, the Bank of Japan will contemplate making additional modifications to its yield curve control (YCC) framework. This could permit the yields of 10-year Japanese government bonds to exceed 1%.
Nikkei reports Bank of Japan will contemplate making additional modifications to its yield curve control (YCC) framework.
"The Bank of Japan is set to consider a further adjustment to its yield curve control (YCC) framework at Tuesday's monetary policy meeting, potentially allowing 10-year Japanese government bond yields to rise above 1%, sources close to the matter told Nikkei."
"The long-term interest rate is currently capped at 1%, with the central bank conducting unlimited fixed-rate buying operations to keep yields below that mark. This ceiling was introduced in July to replace the previous cap of 0.5%."
"The second framework tweak in three months appears to have been deemed necessary as 10-year yields are approaching 1% amid a backdrop of rising U.S. rates."
"The BOJ is also likely to more flexibly conduct its JGB purchase operations, the sources said. This, along with a more flexible cap on 10-year yields, is aimed at deterring speculators from targeting the upper limit and sparing the BOJ the need to buy droves of JGBs to keep rates under 1%."
"The government is wary about the yen's depreciation because it is exacerbating inflation. The yen recently weakened past 150 to the dollar for the first time in a year due to the widening U.S.-Japan interest rate gap."
"If the BOJ manages to suppress the rise in long-term rates, more money will flow to the strong dollar, which could risk further yen depreciation. However, were the BOJ to adjust its YCC framework and allow interest rates to rise to a certain degree, it could halt the yen's fall."
"There are risks to making an adjustment only three months after the last tweak. Long-term rates could rise much more than the BOJ can tolerate, forcing the central bank to buy huge amounts of government bonds to restrict harm on the economy."
Wut Mean?:
The Bank of Japan (BOJ) will discuss potential changes to its yield curve control (YCC) framework during Tuesday's monetary policy meeting, possibly allowing 10-year Japanese government bond yields to surpass 1%.
The current cap on long-term interest rates is 1%, having replaced the previous 0.5% limit in July.
This reconsideration comes as 10-year yields near 1%, influenced by rising U.S. rates.
The BOJ aims to deter speculators by making its bond purchase operations and the cap on 10-year yields more flexible.
It appears concerns are rising as the yen weakens due to the U.S.-Japan interest rate gap, impacting inflation and potentially leading to further depreciation of the yen if the BOJ doesn't adjust its YCC framework.
TLDRS:
The Bank of Japan (BOJ) will discuss potential changes to its yield curve control (YCC) framework during Tuesday's monetary policy meeting, possibly allowing 10-year Japanese government bond yields to surpass 1%.
Concerns are rising as the yen weakens due to the U.S.-Japan interest rate gap, impacting inflation and potentially leading to further depreciation of the yen if the BOJ doesn't adjust its YCC framework.
To fix one end of their mandate (price stability) from the inflation problem they created, the US Fed will continue sacrificing employment (the other end of their mandate) to bolster price stability by continuing to raise interest rates--causing further stress to businesses and households.
This places other central banks in a bind--Bank of Japan continues to watch the Yen fall because of the U.S.-Japan interest rate gap seeing more money flow to the strong dollar, which is risk for further yen depreciation!
