Unexpected Change in Monetary Policy of Japan Central Bank

On December 20, the Bank of Japan released its interest rate statement with a 0.25% increase in the 10-year bond yield. At the same time and following the reactions to this statement, there were fluctuations and changes in the market.

The Bank of Japan’s monetary policy statement includes the outcome of the Bank of Japan’s asset purchase decision and an explanation of the economic conditions that influenced its decision.

Treasuries fell for the third day in a row after the Bank of Japan unexpectedly changed its approach to managing the yield curve, fueling debate over whether the burgeoning bond market rally is now over or on hold. In Asian trading, markets were again indecisive. The yen fell as investors lost hope in the BoJ’s decisions. The Swiss franc, Australian dollar and New Zealand dollar were on the losing side of the market. The Canadian and American dollars, on the other hand, gained strength in the market. Both are awaiting the release of economic data, including the Canadian CPI index and the U.S. consumer confidence index. Meanwhile, the euro and the pound were volatile.

Meanwhile, the head of the IMF in Japan, Ranil Salgado said, “Despite the uncertainty about the inflation outlook, the Bank of Japan’s adjustment of the bond yield curve controls is a reasonable step to avoid concerns about the development of bond markets.”

He also stated, “Clearer communication about prevailing economic conditions to adjust the monetary policy framework will help stabilize market expectations and strengthen the credibility of the Bank of Japan’s commitment to achieving the inflation target.”

The Bank of Japan said it would raise the yield ceiling on 10-year JGB bonds from %0.25 to %0.50 in order to “correct distortions in the yield curve.”