BOJ's shock yield curve decision

The Bank of Japan (BOJ) raised the yield band for 10-year Japanese government bonds from 25 basis points to 50 basis points. Bank of Japan Governor Haruhiko Kuroda said that there was no need to widen the yield band further and that the move did not mean an interest rate hike. In a surprise decision, Bank of Japan (BOJ) Governor Haruhiko Kuroda made changes to the bank’s yield curve control program. According to the decision, the BOJ will now allow 10-year Japanese bond yields to rise to around 0.5 percent instead of 0.25 percent. This has paved the way for the 10-year bond yield to trade within a wider range. The bank said in a written statement that the decision will increase the sustainability of its monetary easing policy. At the meeting, the bank did not make any changes to its policy balance rate of minus 0.1 percent or its 10-year yield target of 0 percent. The BOJ announced that it would increase its bond purchases to 9 trillion yen ($67.5 billion) per month, a figure previously reported as 7.3 trillion yen per month. All 47 economists surveyed by Bloomberg predicted no policy changes, but said the bank needed to do more to improve the functionality of the bond market. The BOJ’s steadfast adherence to the 10-year yield cap has indirectly served as an anchor to keep borrowing costs low around the world. The decision was followed by a flurry of activity in financial markets, and the BOJ began purchasing unlimited bonds of almost all maturities.