MNI BRIEF: BOJ Lifts 10-Year Yield Target To 50bp

The Bank of Japan board Tuesday maintained its yield curve control policy but expanded its target band for the 10-year bond yield to between plus and minus 50bp, up from 25bp.

As a result of the decision, the BOJ raised the rate on its fixed-rate bond buying operation to 0.50% from 0.25%. “The BOJ decided to modify the conduct of yield curve control in order to improve market functioning and encourage a smoother formation of the entire yield curve, with maintaining accommodative financial conditions,” a statement released by the BOJ said. The BOJ's previous 25bp target had been tested as inflation has risen to the highest level in 40-years.

“The BOJ expects that the measures decided today will facilitate the transmission of monetary easing effects generated under the framework of yield curve control, such as through corporate financing.” The BOJ also decided to increase the scale of its purchase of Japanese government bonds.

The decisions reflect the BOJ's acknowledgment of the limits of its 10-year yield range of 25bp amid upward pressure from overseas bond yields on JGB yields and high inflation rates overseas.

The Japanese yen strengthened sharply after the announcement, rallying from around 137 against the U.S. dollar to just above 133. (See CROSS ASSET : BOJ YCC Tweak Strengthens JPY, Weighs On Core Global FI & Equities)