Bank of Japan is surprising global needs with a bond yield shift

Bank of Japan is surprising global needs with a bond yield shift

December 21, 2022: -Global demands were jolted fr after the Bank of Japan unexpectedly widened its capping on 10-year Japanese administration bond yields, sparking a sell-off in bonds and stocks worldwide.

The central bank caught marking off guard by tweaking its yield-curving control (YCC) policy allowing the yield on the 10-year

Japanese Government Bond (JGB) transferred 50 basis points on either side of its 0% target, up from 25 basis points, in a move aiming at cushioning the effects of prolonged monetary stimulus measures.

In a policy statement, the BoJ added that the move intended to “improve market functioning and inspire a smoother formation of the entire yield curving while maintaining accommodative financial conditions.“

The central bank introduced its yield control mechanism in September 2016 to lift inflation towards its 2% target after prolonged economic stagnation and ultra-low inflation.

The BoJ, an outlier compared with most major central banks, also left its benchmark interest rate unchanged at -0.1% Tuesday and vowed to increase the speed of its 10-year government bond purchases, retaining its ultra-loose monetary policy stance. In contrast, other central banks worldwide continue to hike rates and tighten monetary policy aggressively to rein in sky-high inflation.

The YCC changed the Japanese yen and bond yields worldwide to rise while Asian-Pacific stocks tanked. The 10-year JGB yield briefly increments to over 0.43%, increasing since 2015. Japan’s Nikkei 225 closed down 2.5%.

In Morning, the U.S. dollar decreased by 3.3% against the  Japanese yen.

U.S. Treasury yields increase, with the 10-year note, which increases by around seven basis points to just because 3.66% and the 30-year bond rising by more than eight basis points to 3.7078%. Yields move inversely to prices.

Shares in Europe retreated, with the pan-European Stoxx 600 shedding 1% in early trade before which recovers most of its losses by late Morning. European government bonds sold off, with Germany’s 10-year bund yield up almost seven basis points to trade at 2.2640%, which has slipped from its highs.

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