VIEW: Societe Generale Flesh Out Call, Expect YCC Tweak In June

Societe Generale expect that “the BoJ will widen the range of fluctuation permitted on 10-year JGB yields from ±50bp to ±100bp at the June monetary policy meeting. In addition, the BoJ could make it clear that it will hold the current range or YCC until further progress is made in prices and wages.”

• “We do not expect the YCC to be abolished in June. Given the potential for shocks to the financial system and the macroeconomy, as well as the scale of the public debt, lifting the YCC at once would entail great risks, so the BoJ will probably take a cautious approach. In fact, if the BoJ abolished YCC in June, the 10-year JGB yield may exceed 1%.”
• “The expansion to ±100bp can be justified without price developments. Regarding market functioning, the BoJ is paying attention to the rise in 10-year corporate bond yields, which it has already increased to about 1%. In addition, even if the BoJ widens the range to ±100bp, the average easing effect since the introduction of the ultra-easy monetary policy would be maintained. Moreover, YCC sustainability has been improving in the short term.”
• “We do not expect the 10-year yield target to be shifted to a shorter maturity. YCC sustainability is higher with the 10-year interest rate target.”