The Bank of Japan (BOJ) on October 28, 2023 decided to relax its grip on interest rates by widening the band around its 10-year Japanese government bond (JGB) yield target from 0.25% to 0.5%. This move is seen as a sign that the BOJ is preparing for an eventual end to its yield curve control (YCC) policy.
The BOJ introduced YCC in 2016 in an effort to boost inflation and economic growth. The policy works by the BOJ buying unlimited amounts of JGBs to keep the 10-year yield within a target range.
However, YCC has come under increasing pressure in recent months due to rising global bond yields and a weakening yen.
The BOJ’s decision to widen the YCC band is a significant step towards normalizing its monetary policy. It is also a sign that the BOJ is becoming more comfortable with the possibility of higher interest rates in Japan.
However, the BOJ has said that it is still committed to YCC and that it will continue to buy unlimited amounts of JGBs to defend its yield target. It is therefore unclear when the BOJ will actually end YCC.
Analysts say that the BOJ is likely to wait until inflation is more sustainably above its 2% target before ending YCC. They also say that the BOJ is likely to unwind YCC gradually to avoid market disruption.
The BOJ’s decision to widen the YCC band is a positive development for the Japanese economy. It signals that the BOJ is moving closer to normalizing its monetary policy, which is necessary to support sustainable economic growth.