Technical Analysis
3 reasons the Bank of Japan surprised with changed yield curve control policy
From yesterday, ICYMI:
Follow through for the yen in Europe and America times:
Deutsche Bank on the BOJ’s “surprise change to their yield curve control policy”
- The
BoJ have framed this decision around market functioning, with Governor
Kuroda saying that this was not a rate hike. - And to be fair, they did
announce an increase in bond purchases to 9 trillion yen per month, up
from 7.3 trillion yen. - Nevertheless, these moves are justifiably being seen as the
beginning of a move away from the ultra-loose monetary policy of recent
years and with global implications.
As to why now:
several factors lie behind the BoJ’s decision to act today
- The
biggest is the upcoming reshuffle at the Bank of Japan, since officials
may have felt that sticking too strongly to easing might encourage the
selection of a more hawkish governor favouring aggressive policy
normalisation. - Other factors include lower global yields in recent weeks
that have eased the upward pressure on Japanese yields, which in turn
means the BoJ may have felt the shock from a YCC change wouldn’t be as
big. - There must also be a timing element with the Christmas holidays,
since few overseas investors will be actively selling JGBs and with many
across the globe on holiday.
1 and 2, yeah.
3 I’m not so sure of. There would have been plenty of phones ringing in the dead of night right across bond-trader land on this pivot bombshell shock.
Happy holidays.