The Bank of Japan (BOJ) maintained its low-interest rate target at 0.1% and the Yield Curve Control’s (YCC) 10-year government bond yield target around 0%, while introducing a slight hawkish tweak to its liquidity-boosting bond-buying program. Rates strategist Rishi Mishra tweeted, The BOJ retained the language around 0.5% target for 10Y JGB, but moved the hard cap to 1%, with a vague language on ‘flexibility.’ I think this is basically a proper YCC tweak, with semantics designed to make people think it’s not as hawkish as it is. Chris Weston, head of research at foreign-exchange brokerage Pepperstone, confirmed the new hard cap is 1%. The move comes days after the International Monetary Fund urged the BOJ to move away from the yield curve control to prepare for eventual interest rate hikes.
Despite the BOJ decision, Bitcoin (BTC) held above $29,000 and continued to trade sideways. Bond yields, however, rose, offering negative cues to risk assets, including Bitcoin. The 10-year Japanese government bond yield rose six basis points to 0.56%, reaching the highest since January, while its U.S. counterpart rose three basis points to 4.03%, extending the overnight 13 bps gain. The BOJ’s yield curve control – perpetual QE – has been a significant source of liquidity for the global markets since 2016, and its relaxation of the bond market at a time when the Federal Reserve and other major central banks look set to hold interest rates higher for longer might mean a challenging time for risk assets.