Land of the Rising Yields Gives Markets a Shock
Whatever the short-term pain, the result of the Bank of Japan’s move on Yield Curve Control will be a healthier global economy.
In a sweltering Tokyo summer, the Bank of Japan has raised the temperature.
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They say the Bank of Japan likes to take the market by surprise. That’s happened in the last few hours, generating great and unnecessary confusion. But as far as I can tell, writing a matter of minutes after the decision to significantly step down intervention in the bond markets was announced, it marks a turning point for the world and its attempt to escape inflation.
Yield Curve Control (YCC), or intervening to keep 10-year yields down, has been in force for seven years, and the current target of 0.5% had been in place for seven months. The BOJ has now decided to control yields “more flexibly,” which means in practice that it will now tolerate yields as high as 1%, double the previous limit. Nobody saw anything so drastic coming until Nikkei reported in the New York afternoon that changes were being considered. Soon after, the 0.5% ceiling was being breached.