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

  1. 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
  2. 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
  3. 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.

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