UBS on Bank of Japan Yield Curve Control – ceiling seems to be 1%

The Bank of Japan maintained its +/- 50bp tolerance band for the 10 year JGB at Friday’s meeting.

The ‘but’ on this is the Bank said it wanted the YCC policy to be more flexible. This the +/- 0.5% tolerance band is now a ‘reference’, not a hard limit. . , and said those would be “references” rather than “rigid limits”. And that it’d allowed the band to move to 1%. Which left a lot of traders confused. It appears that +/- 1% is now the hard limit, but time will tell.

UBS are confused, like many of us:

  • The Bank of Japan “has allowed great flexibility … in fact the hard line now seems to be 1%.”
  • “It is an important step towards eventual disbandment. I expect yields will gravitate towards 1% but not get there in a straight line as you’re likely to get short covering, domestic buying and the BOJ leaning against it.”

Bank of Japan Governor Ueda

This article was written by Eamonn Sheridan at Source