Rising yields may pressure BOJ to consider raising newly set cap
© Reuters. FILE PHOTO: Japanese national flag is hoisted atop the headquarters of Bank of Japan in Tokyo, Japan September 20, 2023. REUTERS/Issei Kato/File Photo
The sources said there is currently no consensus within the central bank on whether an immediate change to YCC is necessary. Meanwhile, rising U.S. bond yields are pulling their Japanese counterparts higher, complicating the BOJ's task of keeping local interest rates low. As part of efforts to reflate growth and sustainably hit its 2% inflation target, the BOJ uses YCC to guide the 10-year Japanese government bond yield around 0%. In July, it raised the de-facto cap on the yield to 1.0% from 0.5% to allow long-term rates to rise more reflecting increasing inflation.
While raising the cap would allow the BOJ to avoid ramping up bond buying and dry up already thinning market liquidity, doing so could push the yield further away from the 0% target, casting doubt on the feasibility of YCC.
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