The Bank of Japan (BOJ) has been implementing a yield curve control (YCC) policy since September 2016. This policy aims to keep the 10-year Japanese government bond (JGB) yield at around 0%. However, there have been indications that the BOJ may terminate YCC in the near future. In this article, we will discuss some of the indicators that suggest the BOJ may end YCC.
Firstly, the BOJ has been reducing its JGB purchases in recent years. In 2018, the BOJ announced that it would reduce its JGB purchases from ¥80 trillion to ¥60 trillion per year. In 2019, it further reduced its purchases to ¥40 trillion per year. This reduction in JGB purchases suggests that the BOJ is gradually moving away from its ultra-loose monetary policy.
Secondly, the BOJ has been conducting a review of its monetary policy framework. In March 2021, the BOJ announced that it would launch a review of its monetary policy framework in order to make it more sustainable and effective. This review is expected to be completed by September 2021. Some analysts believe that the BOJ may use this review as an opportunity to announce the termination of YCC.
Thirdly, inflation expectations in Japan have been rising. Inflation expectations are a key factor in determining the effectiveness of YCC. If inflation expectations are low, then YCC may be necessary to stimulate inflation. However, if inflation expectations are high, then YCC may no longer be necessary. In Japan, inflation expectations have been rising due to a combination of factors, including a tight labor market and rising commodity prices.
Finally, the global economic environment has been improving. The COVID-19 pandemic has had a significant impact on the global economy, but there are signs that the worst may be over. As the global economy recovers, central banks around the world may start to normalize their monetary policies. If other central banks start to raise interest rates, then the BOJ may also need to adjust its monetary policy.
In conclusion, there are several indicators that suggest the BOJ may terminate YCC in the near future. These include the BOJ’s reduction in JGB purchases, its review of its monetary policy framework, rising inflation expectations in Japan, and the improving global economic environment. As always, traders should keep a close eye on these indicators and adjust their trading strategies accordingly.
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- Source: https://zephyrnet.com/signs-the-boj-could-end-ycc-orbex-forex-trading-blog/
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