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 yield at around 0%, while also maintaining short-term interest rates at -0.1%. However, there are indications that the BOJ may terminate this policy in the near future. In this article, we will explore some of the indicators that suggest the BOJ may be considering ending its YCC policy.
Firstly, the BOJ has been reducing its purchases of Japanese government bonds (JGBs) in recent months. This is a clear sign that the central bank is gradually reducing its monetary stimulus measures. In July 2021, the BOJ announced that it would reduce its JGB purchases to an average of ¥5 trillion per month, down from ¥6 trillion previously. This reduction in bond purchases suggests that the BOJ is becoming more confident in the Japanese economy’s ability to recover from the pandemic.
Secondly, inflation expectations in Japan have been rising. The BOJ’s target inflation rate is 2%, but Japan has been struggling with deflation for many years. However, recent data shows that inflation expectations are starting to pick up. In July 2021, the BOJ’s quarterly survey showed that Japanese firms expect consumer prices to rise by 0.8% over the next year, up from 0.7% in the previous survey. This increase in inflation expectations suggests that the BOJ may be more willing to end its YCC policy and allow interest rates to rise.
Thirdly, the global economic environment is changing. The US Federal Reserve has already started to taper its bond purchases, and other central banks may follow suit. If other central banks start to tighten their monetary policies, it may become more difficult for the BOJ to maintain its YCC policy without causing significant disruptions in financial markets. Therefore, the BOJ may be considering ending its YCC policy to avoid being left behind by other central banks.
Finally, the BOJ’s own assessment of the Japanese economy has improved. In its July 2021 monetary policy statement, the BOJ upgraded its assessment of the economy, saying that it “has continued to recover moderately.” This suggests that the BOJ may be more willing to end its YCC policy and allow interest rates to rise as the economy continues to improve.
In conclusion, there are several indicators that suggest the BOJ may be considering ending its YCC policy. These include a reduction in JGB purchases, rising inflation expectations, changes in the global economic environment, and an improved assessment of the Japanese economy. While it is not yet clear when the BOJ will end its YCC policy, traders should keep a close eye on these indicators for any signs of a shift in the central bank’s monetary policy.
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- Source: https://zephyrnet.com/signs-the-boj-could-end-ycc-orbex-forex-trading-blog/
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