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BOJ announced a proper yield curve control tweak with semantics that camouflaged the hawkish move.
- The BOJ announced a hawkish tweak to its yield curve control (YCC) program, shifting the hard cap on the 10-year Japanese government bond yield to 1% from 0.5%.
- Bond yields rose after the BOJ decision, offering negative cues to risk assets, including bitcoin.
- BOJ’s YCC has been a major source of liquidity for global markets since 2016. The move away from the liquidity-boosting policy may have global repercussions.
Bitcoin (BTC) remained above $29,000 on Friday, while Japanese and U.S. government bond yields rose after the Bank of Japan’s (BOJ) slight hawkish tweak to its yield curve control (YCC) program with maintained low-interest rates.
The central bank maintained short-term interest rates at 0.1% and a 10-year government bond yield target of approximately 0%. Their decision to allow the 10-year yield to fluctuate within 0.5% above and below the 0% target, as determined in December 2022, remains unchanged.
The bank, however, said that the 0.5% band would be a reference and not a hard cap, promising more flexibility in the yield curve control.
According to rates strategist Rishi Mishra’s tweet, the BOJ maintained the 0.5% target for the 10-year Japanese Government Bond (JGB) but adjusted the hard cap to 1%, using vague language on “flexibility.” Mishra suggests this is essentially a proper tweak to the Yield Curve Control (YCC) program, with the wording crafted to downplay its hawkish nature.
Chris Weston, head of research at foreign-exchange brokerage Pepperstone, said the new hard cap is 1%.
The BOJ’s decision to make this move comes shortly after the International Monetary Fund (IMF) recommended moving away from yield curve control to prepare for potential interest rate hikes.
Several investment banks had anticipated a band widening to 100 basis points from 50 bps, with Goldman Sachs saying it might send out a wrong signal to the market.
Bitcoin did not see big moves following the BOJ decision and continued to trade sideways, around $29,250.
However, bond yields increased, which is not good news for risk assets, including bitcoin. The 10-year Japanese government bond yield reached 0.56%, a six basis points rise and the highest since January. In the U.S., the 10-year bond yield also increased by three basis points, reaching 4.03%, following a 13 basis points gain overnight.
The Bank of Japan is easing its control on the bond market, while other major central banks plan to keep interest rates higher for longer. This could make it harder for risky investments. The Bank of Japan’s “yield curve control” program has provided a lot of money to the global markets since 2016 and has also helped lower borrowing costs worldwide.
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