The Bank Of Japan Blinks And Markets Tremble
The Bank of Japan sent shockwaves through global capital markets as it announced an increase in its targeted rate for yield curve control, sending global bond yields soaring.
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Bank Of Japan Raises Cap On Yield Curve Control
The macro story of the day was a shocker out of Tokyo.
Late Monday evening, the Bank of Japan (BOJ) announced it had increased its cap on 10-year bond yields from 0.25% to 0.5%, while keeping short- and long-term interest rates unchanged.
The cap at the 0.25% level had been suppressing global bond markets with the use of an unlimited money printer for Japanese debt. This in turn caused a significant deterioration of the yen against the dollar, while the BOJ used its immense pile of Treasurys to occasionally defend the currency against speculators.
We have written about this policy and its impacts on global markets many times before:
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While absolutely massive in its change for market dynamics, the move still leaves the BOJ far below its peers in terms of policy rate, which is mainly due to the demographics of Japan and its debt-to-GDP statistics.
This yield-cap increase, which was unexpected by economists surveyed by Bloomberg, caused an immediate jump in the yen and a slide in global government bonds, sending shockwaves through global financial markets. It also led to a surge in Japanese bank stocks, as investors anticipated improved earnings for financial institutions.
So we’ve seen how this surprise affected the Japanese market, but what impact will the Bank of Japan’s decision have on global bond markets?
Bank of Japan Governor Haruhiko Kuroda laughing as he hikes rates for the world.