BOJ unveils new tool to defend yield control policy
Info via Reuters:
- Bank of Japan on Wednesday amended rules for a fund-supply market operation to use it as a new tool to prevent long-term interest rates from rising too much, in a show of its resolve to maintain yield curve
Yield Curve
A yield curve is a line used to help determine interest rates of interest rates for a specific bond, differentiated by contract lengths. This is useful for contrasting maturity dates, for example 1 month, 1 year, etc.In particular, yield curves help underscore the relationship between interest rates or borrowing costs and the time to maturity.Some of the best examples of this include US Treasury Securities, which are among some of the most observed worldwide by traders. By determining the slope of yield curves, it is possible to plot or predict future interest rate changes. There are three types of yield curves that are primarily studied, classified as normal, inverted, or flat.Why are Yield Curves Important?Yield curves like other benchmarks help investors and analysts ascertain more information about specific constructs affecting financial markets.For example, a normal or upward sloping curve points to economic expansion. Expectations of yields becoming higher in the future help attract funds in shorter-term securities with the hopes of purchasing longer-term bonds later, for a higher yield.The opposite is true in the case of an inverted or downward sloping curve, which traditionally points to an economic recession. If yields are expected to eventually be lower, investors opt to purchase longer-term bonds to help price in yields before further decreases occur.Subsequently, these are predictive of economic output and growth and are thus instrumental in financial analysis.These curves are also utilized primarily as a barometer for other forms of debt in a market, including bank lending rates, mortgage rates, and other benchmarks.The most reported yield curves deal with US Treasury debt, comparing the 3-month, 2-year, 5-year, 10-year and 30-year intervals. This information is published daily.
A yield curve is a line used to help determine interest rates of interest rates for a specific bond, differentiated by contract lengths. This is useful for contrasting maturity dates, for example 1 month, 1 year, etc.In particular, yield curves help underscore the relationship between interest rates or borrowing costs and the time to maturity.Some of the best examples of this include US Treasury Securities, which are among some of the most observed worldwide by traders. By determining the slope of yield curves, it is possible to plot or predict future interest rate changes. There are three types of yield curves that are primarily studied, classified as normal, inverted, or flat.Why are Yield Curves Important?Yield curves like other benchmarks help investors and analysts ascertain more information about specific constructs affecting financial markets.For example, a normal or upward sloping curve points to economic expansion. Expectations of yields becoming higher in the future help attract funds in shorter-term securities with the hopes of purchasing longer-term bonds later, for a higher yield.The opposite is true in the case of an inverted or downward sloping curve, which traditionally points to an economic recession. If yields are expected to eventually be lower, investors opt to purchase longer-term bonds to help price in yields before further decreases occur.Subsequently, these are predictive of economic output and growth and are thus instrumental in financial analysis.These curves are also utilized primarily as a barometer for other forms of debt in a market, including bank lending rates, mortgage rates, and other benchmarks.The most reported yield curves deal with US Treasury debt, comparing the 3-month, 2-year, 5-year, 10-year and 30-year intervals. This information is published daily.
Read this Term control (YCC) for the time being. - Under the amended rules, the central bank can offer funds of up to 10 years against collateral to financial institutions for both fixed- and variable-rate loans.
- After announcing the new rules, the BOJ said it will offer five-year loans under the fund-supply operation with a duration of between Jan. 24, 2023 and Jan. 24, 2028.
JGB 10 yr yields have dropped under 0.4%, from a high above 0.5% prior to the BOJ statement earleir.
USD/JPY
JPY
The Japanese yen (JPY) is the official currency of Japan and at the time of writing is the third most-traded currency in the world behind only the US dollar and euro.The JPY is used extensively as a reserve currency and is relied upon by forex traders as a safe haven currency.Originally implemented in 1871, the JPY has had a long history and has survived multiple world wars and other events. This was followed by the creation of the Bank of Japan (BoJ) in 1882 and the full oversight of the JPY by the Japanese government only in 1971.Japan has historically maintained a policy of currency intervention, continuing to this day. The BoJ also adheres to a policy of zero to near-zero interest rates and the Japanese government has previously had a strict anti-inflation policyWhat Factors Affect the JPY?The aforementioned role of the BoJ has dramatically shaped the JPY in forex markets. Any further changes in monetary policy by the central bank are closely watched by forex traders.Additionally, the Overnight Call Rate is the key short-term inter-bank rate. The BoJ utilizes the call rate to signal monetary policy changes, which in turn impact the JPY.The BoJ also purchases both 10- and 20-year Japanese government bonds (JGBs) on a monthly basis in order to inject liquidity into the monetary system. The consequent yield on the benchmark 10-year JGBs helps serve as a key indicator of long-term interest rates.Economic data is also very important to the JPY. The most important of these releases in Japan are gross domestic product (GDP), the Tankan survey (quarterly business sentiment and expectations survey), international trade, readings of unemployment, industrial production, and money supply (M2+CDs).
The Japanese yen (JPY) is the official currency of Japan and at the time of writing is the third most-traded currency in the world behind only the US dollar and euro.The JPY is used extensively as a reserve currency and is relied upon by forex traders as a safe haven currency.Originally implemented in 1871, the JPY has had a long history and has survived multiple world wars and other events. This was followed by the creation of the Bank of Japan (BoJ) in 1882 and the full oversight of the JPY by the Japanese government only in 1971.Japan has historically maintained a policy of currency intervention, continuing to this day. The BoJ also adheres to a policy of zero to near-zero interest rates and the Japanese government has previously had a strict anti-inflation policyWhat Factors Affect the JPY?The aforementioned role of the BoJ has dramatically shaped the JPY in forex markets. Any further changes in monetary policy by the central bank are closely watched by forex traders.Additionally, the Overnight Call Rate is the key short-term inter-bank rate. The BoJ utilizes the call rate to signal monetary policy changes, which in turn impact the JPY.The BoJ also purchases both 10- and 20-year Japanese government bonds (JGBs) on a monthly basis in order to inject liquidity into the monetary system. The consequent yield on the benchmark 10-year JGBs helps serve as a key indicator of long-term interest rates.Economic data is also very important to the JPY. The most important of these releases in Japan are gross domestic product (GDP), the Tankan survey (quarterly business sentiment and expectations survey), international trade, readings of unemployment, industrial production, and money supply (M2+CDs).
Read this Term has hit a fresh session high circa 131.50.
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Bank of Japan Governor Kuroda press conference begins from 0600 GMT (0100 US ET)
He’s not taking prisoners.
