Mohamed A. El-Erian , Columnist

Time to Hasten Japan’s YCC Exit or Risk Unsettling Instability

Distortions from the BOJ’s policy of suppressing yields threaten to spill over into bond markets in the US and elsewhere.

October 30, 2023 at 5:03 AM UTC

By Mohamed A. El-Erian

Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.”

Kazuo Ueda, governor of the Bank of Japan, has a difficult road ahead.
Photographer: Hollie Adams/Bloomberg via Getty Images

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At a time of intense focus on the wild moves in US Treasuries, it may seem silly to make much of a Bloomberg News headline marking the rise in Japan’s 10-year government bond yield to 0.8% for the first time since 2013. Far from it. This development illustrates not just spillovers from US markets but also the material risk of adverse spillbacks to the US and markets around the world.

Let’s start with some facts. The 10-year yield is now trading close to 0.9% despite several rounds of bond purchases by the Bank of Japan. The yen has depreciated to around 150 per dollar, commonly viewed as a level that risks triggering official intervention in the foreign-exchange markets. The latest inflation measures have come in above consensus forecasts.