Japanese bond yields test BOJ ceiling as YCC decision looms By

-- Japanese government bond yields rose sharply on bfs NiuhuiFriday, hitting the top end of the Bank of Japan’s control range as markets speculated over a potential change in the bank’s ultra-dovish stance.

jumped 13.5% to 0.50%- testing the upper end of the BOJ’s yield curve control (YCC) range for the first time in four months. 

The move comes after a Nikkei report suggested that the central bank was considering altering its YCC policy in a meeting later on Friday.

has remained sticky and well above the BOJ’s target range in recent months, which puts pressure on the bank to begin tightening policy to curb high prices. Recent data showed that underlying Japanese inflation remained close to 40-year highs, showing that price pressures now extended beyond volatile items like fresh food and fuel prices.

Data on Friday also showed that grew more than expected in July, likely heralding a similar trend in nationwide inflation.

The BOJ is widely on Friday. But the bank could potentially widen the range within which it allows yields on 10-year government bonds to fluctuate, which is currently negative 0.5% to 0.5%. 

The bank had last altered the YCC policy in December, amid mounting inflation and pressure from the market to begin tightening policy. The move was the BOJ’s first change to the YCC policy since its introduction in 2016.

The policy was introduced in a bid to stimulate inflation, which remained weak despite excessive bond buying. Its aim was to subdue short- to medium-term rates and increase liquidity without reducing super-long yields and denting returns for pension funds and life insurers.

But this saw trading in Japanese bonds drop drastically since the policy’s introduction. 

Still, a spike in Japanese inflation over the past year saw traders begin questioning just how long the BOJ could maintain the strict policy, which in turn prompted yields to begin testing the YCC policy’s top end. 

The bank is now reportedly considering a widening in the YCC range, or even its potential scrapping this year.

 

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