Japan's BOJ Decides to Modify YCC Policy... Interest Rate Allowance Range Unclear

10-Year Bond Yield Exceeds 1% but Accepted by Yongin
Allowance for Interest Rate Acceptance in Yongin Not Specified
Policy Revision Decided Amid Rising Government Bond Yields

The Bank of Japan (BOJ) decided to revise its yield curve control (YCC) policy at the monetary policy meeting held on the 31st. The decision to modify the policy was analyzed to be due to signs that long-term interest rates were about to exceed the BOJ's allowable fluctuation range of 1%.

Bank of Japan (BOJ)

According to the Nihon Keizai Shimbun on the same day, the BOJ decided to maintain the upper limit of the 10-year government bond yield at 1% as before, but to revise the YCC policy to allow yields to exceed this level to some extent depending on market trends. The YCC policy involves unlimited purchases of government bonds to keep long-term interest rates at a certain level.

However, the Nihon Keizai Shimbun did not specify how much the 10-year government bond yield would be allowed to exceed the 1% threshold. BOJ Governor Kazuo Ueda plans to explain the specific decisions at a press conference on the day. In July, the BOJ announced a policy to maintain the government bond yield ceiling at 0.5% while allowing interest rates to rise up to 1% depending on market movements. When the yield exceeded 1%, the BOJ had been suppressing the rise by unlimited purchases of government bonds.

The BOJ decided to keep short-term interest rates fixed at -0.1% and continue measures such as purchasing inflation-linked exchange-traded funds (ETFs) as before.

The revision of the policy by the BOJ after three months appears to be caused by the rising trend in long-term government bond yields. Since the BOJ revised the YCC policy in July, the 10-year government bond yield has continued to rise, reaching 0.890% on the previous day, the highest level since July 2013. When the 10-year yield exceeds 1%, the BOJ must purchase government bonds, but with the current government bond holding ratio at 53%, it is analyzed that the BOJ feels burdened by the unlimited bond purchase measures.

The Nihon Keizai Shimbun stated, "The main intention behind the BOJ's policy revision this time is to prevent the scale of government bond purchases from increasing. However, the risk remains that if interest rates exceed a certain level set by the BOJ, it will have to resume large-scale government bond purchases."

This content was produced with the assistance of AI translation services.