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.

Relevant Past Articles:

• The Unfolding Sovereign Debt & Currency Crisis

• The Bitcoiner's Guide To Yield Curve Control & The Fiat End Game 

• Just How Big Is The Everything Bubble?

• Not Your Average Recession: Unwinding The Largest Financial Bubble In History

• The Everything Bubble: Markets At A Crossroads

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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. 

Dylan LeClair 🟠 @DylanLeClair_

Equities bid because of a weak dollar. The weak dollar is the result of a stronger yen, which is a result of a higher rates for Japanese government bonds (JGBs). Higher rates for JGBs lifts global bond yields, thus making equities less attractive on a relative basis.

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. 

Dylan LeClair 🟠 @DylanLeClair_

On September 22nd the Bank of Japan spent ¥2.84 trillion ($19.7 billion) to stem the yen’s slide, its first intervention to support the currency since 1998. Speculators continue to pile on short as yield curve control persists in Japan - USDJPY has since fully retraced.

We have written about this policy and its impacts on global markets many times before: 

7/23/22 - The Unfolding Sovereign Debt & Currency Crisis

7/28/22 - The Bitcoiner's Guide To Yield Curve Control & The Fiat End Game 

8/10/22 - Just How Big Is The Everything Bubble?

10/7/22 - Not Your Average Recession: Unwinding The Largest Financial Bubble In History

12/1/22 - The Everything Bubble: Markets At A Crossroads

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In case you missed it: Bitcoin Magazine PRO hosted Matthew Pines to discuss the current geopolitical landscape and how to think about the next decade with shifting power structures.

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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.