Bank of Japan defies market pressure and holds firm on yield curve control

Bank of Japan defies market pressure and holds firm on yield curve control

The Bank of Japan has left its yield curve control measures unchanged after a carefully watched assembly, bucking market pressure to scrap a core pillar of its financial coverage.

The choice got here after a two-day assembly — the penultimate underneath the BoJ’s longest-serving governor, Haruhiko Kuroda — and follows weeks of turmoil within the Japanese authorities bond market throughout which yields surged.

The central financial institution spent roughly 6 per cent of Japan’s gross home product defending its yield goal within the final month alone.

Following the BoJ’s unexpected decision in December to widen the goal yield ceiling on 10-year Japanese authorities bonds, markets had confronted the chance of a historic pivot by the final of the world’s main central banks nonetheless sticking to an ultra-loose financial regime.

But as a substitute of scrapping its coverage of yield curve control, the central financial institution made no additional adjustments, saying that it might proceed to permit 10-year bond yields to fluctuate by 0.5 proportion factors above or under its goal yield of zero.

It stored in a single day rates of interest at minus 0.1 per cent.

Kuroda will step down in April after a document 10 years as BoJ governor.

Since its final coverage assembly on December 20, the BoJ has spent round ¥34tn ($265bn) on bond purchases, with the yields on 10-year bonds rising above the goal band to 0.53 per cent final week. That prompted markets to place pressure on the central financial institution to desert the yield goal altogether.

“This tempo of bond purchases just isn’t sustainable. Clearly we’re seeing the boundaries of the YCC within the face of rising yields. It’s now in a terminal situation,” Mari Iwashita, chief market economist at Daiwa Securities, mentioned forward of the coverage assembly.

Kuroda mentioned final month that altering the YCC limits have been meant to enhance bond market functioning and weren’t an “exit technique”.