BoJ statement indirectly confirms YCC as a tool to taper

Since the Bank of Japan (BoJ) reshaped its “Qualitative and Quantitative Easing” in September this year by attaching the “yield curve control” with it, many analysts in the financial markets including us at FxWirePro have speculated whether the YCC could be the way out of this record easing. In our view, with trillions of dollars’ worth of Japanese government bonds in its balance sheet, the central bank can definitely play a crucial role in determining the level of yield in longer-dated maturities. While the financial market would determine the level of yield, BoJ could act to provide anchors to those yields via its market operations. Currently BoJ is maintaining the 10-year yield level at zero percent and in reality, it is somewhat allowing to rise within 10 basis points. BoJ can buy bonds if yields move too high from the anchor or sell bonds if it drops below. It can even change the anchor to change the pace of the bonds bought or sold.

Today’s monetary policy Statement from the Bank of Japan (BoJ) somewhat confirms this idea. With regard to "yield curve control", the statement said, “The Bank will purchase Japanese government bonds (JGBs) so that 10-year JGB yields will remain at around zero percent. With regard to the amount of JGBs to be purchased, the Bank will conduct purchases at more or less the current pace”