BoJ May Raise Yield Curve Ceiling To 1.5%: BoFA

The US bank weighs in on the outlook for the BoJ's YCC next week. The bank sees risks that the ceiling for YCC is raised to 1.5% (note this view was released prior to this morning's Tokyo CPI print). See below for more details.

The BOJ may raise its ceiling for yield curve control to 1.5% from its current 1% at its monetary policy meeting on Oct. 30-31, according to BofA Securities analysts.

• Risks of a re-acceleration in Japan’s balance sheet expansion from trying to curb the rise of yields and depreciation of the yen necessitate that the BOJ adjusts its YCC policy, say analysts at the firm including Izumi Devalier and Shusuke Yamada, whose previous base case was the ending of NIRP and revising YCC in January 2024
• Now its base case is “better than even odds” the BOJ will tweak YCC again next week
  • “That said, we expect the BOJ to frame the adjustment as another precautionary move and underscore that it stands ready to contain the pace of rise in yields, perhaps even strengthening its bond market operations in the near term”
• • A change at the October meeting may risk worsening the global selloff in bonds, but unscheduled bond-buying and funds-supplying operations will likely be used soon after the meeting to contain the rise in yields
• Thinks it is a “risky strategy” to wait until next year for revisions to NIRP and YCC
• If the BOJ does raise its YCC ceiling by 50bps, the dollar-yen may decline to 148, but would stabilize with an upward bias given carry.