on Wednesday, January 18, maintained ultra-low interest rates, including a bond yield cap it was struggling to defend, defying market expectations it would phase out its massive stimulus program amid mounting inflationary pressure.skidding against other currencies and bond yields tumbling the most in decades, as investors unwound bets they made anticipating the central bank would overhaul its yield control policy.
The central bank also made no change to its guidance that allows the 10-year bond yield to move 50 basis points either side of its 0% target. “By showing its resolve to use market tools more flexibly, the BOJ wanted to signal to markets it won’t make big monetary policy changes under Kuroda.” JGB yields tumbled across the curve with the benchmark 10-year yield sliding to 0.37%, well below the BOJ’s 0.5% ceiling and posting the biggest one-day decline since November 2003 at one point.Since December’s action, the BOJ has faced the biggest test to its YCC policy since its introduction in 2016 as rising inflation and the prospects of higher wages gave traders an excuse to attack the central bank’s yield cap with aggressive bond selling.
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