From Breakingviews - Bank of Japan has its cake and eats it
yield curve control scheme, its mechanism for controlling long-term interest rates. The central bank said its previous rigid target of keeping yields on 10-year sovereign bonds in a range of 0.5% to minus 0.5% was now just a “reference”. And it promised to buy 10-year bonds at 1%, which Ueda defined as a “just-in-case” cap.
The changes amount to a modest monetary tightening but policymaking is rarely so non-committal. Traders immediately breached the officially unchanged range; the yield on 10-year government bonds hit a 9-year high of 0.575% .where rising inflation lifts wages and spending after decades of stagnation. Yet the “just-in-case” cap gives the BOJ an easier way than most central banks to row back from tightening if economic data sours.
Global investors are left wondering when Japanese entities will get closer to repatriating overseas assets totalling some $5.4 trillion in response to higher rates. The world was guessing when the BOJ would give up its yield curve control policy. Instead, the bank may have found a way to make it more sustainable.
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