The Bank of Japan said Tuesday it still wants the yield on 10-year Japanese government bonds to remain at roughly zero, but it also said it would allow the yield to move up to 0.50% instead of the 0.25% cap it had held previously. What made Tokyo’s unexpected move a particular surprise was that the world’s third-largest economy has been among the most resistant to join the global campaign to hike rates aggressively in order to undercut high inflation. The Associated Press has the story:
Bank of Japan loosens 10- year Govt bond yield cap
Newslooks- (AP)
The Bank of Japan broadened caps for a benchmark government bond yield, a surprise move that pushed bond yields higher globally and dinged stocks in Asia.
The central bank on Tuesday said that it would allow the yield curve on the 10-year Japanese Government Bond to range 50 basis points either side of its 0% target, up from the previous cap of 25 basis points.
The Bank of Japan did not mention inflation in its policy statement, but said the shift is intended to “improve market functioning and encourage a smoother formation of the entire yield curve, while maintaining accommodative financial conditions.“
Japan had been a holdout among major industrialized nations in allowing yields to rise. Europe nations and the U.S. have been hiking rates aggressively to battle inflation.
The central bank introduced the previous caps to control its yield curve in September 2016, hoping to lift inflation closer to its 2% target after a long stretch of economic malaise and stagnant inflation. Because of the slow economic growth, the government has primarily used spending to combat inflation instead of raising interest rates.
Earlier this month, Japan’s parliament approved a hefty 29 trillion yen ($206 billion) supplementary budget aimed at countering the blow to household finances from rising food and utility costs and the weaker yen.
In reaction to the announcement bond yields rose globally, but stocks in Asia slid immediately.
Japan’s Nikkei 225 index closed 2.5% lower.
Shares in Europe and the U.S. retreated briefly, but recovered.
