On December 20, the Bank of Japan announced its interest rate decision and announced a major policy change called a " black swan event " at its monetary policy meeting. The Bank of Japan unexpectedly adjusted its yield curve control plan, announcing that it would raise the upper limit of the yield target from 0.25% to about 0.5%, and at the same time increase the scale of Japanese government bond purchases from January to March to 9 trillion yen per month.
This is the last monetary policy meeting of the Bank of Japan this year. Almost no one in the market expected the Bank of Japan's move to expand the yield curve control zone. The Bank of Japan is the last central bank among the world's developed economies to hold a year-end interest rate meeting in 2022. It is also the last central bank in the world to change its policy. Its policy adjustments are bound to cause a "big earthquake" in the global financial market.
Except for revising the upper limit of the yield target and increasing the scale of bond purchases, the rest of the resolution content remains unchanged from the last time, in line with previous expectations. In terms of interest rates, the Bank of Japan kept its policy rate unchanged at -0.1% and maintained its 10-year JGB yield target at around 0%. Bonds In terms of bonds, the Bank of Japan will continue to purchase 10-year Japanese government bonds at an interest rate of 0.5% on each trading day without setting a purchase limit.
Separately, the Bank of Japan reiterated its 2% inflation target and said it would continue to expand the monetary base until the consumer price index (all items except fresh food) rose by more than 2% year-on-year and stabilized above the target.
The black swan event contributed to the rise of the yen, Treasury bond yields soared
The Bank of Japan unexpectedly significantly revised the yield curve control plan, triggering a sharp rise in the yen and a sharp fall in the Japanese stock market. After the resolution results were released, the U.S. dollar-yen exchange rate plummeted nearly 400 points during the session, falling below the four levels of 137, 136, 135, and 134. The latest trading was around 132.95. The Japanese yen's cumulative increase in less than 10 minutes was as high as more than 2%.
Japan's 10-year yield surged 21 basis points to 0.467%, the highest since 2015, while the 5-year JGB yield surged 12 basis points to 0.26%, the highest since 2013.
Finally gave up low interest rates and moved towards policy normalization
All 47 economists surveyed by foreign media earlier predicted that the Bank of Japan would not change monetary policy today. Even if it changes monetary policy in the future, it will only be done after Governor Haruhiko Kuroda leaves office in April next year. Today's policy shift by the Bank of Japan clearly exceeded everyone's expectations.
The Bank of Japan’s unexpected decision to adjust its yield curve control policy quickly sent shockwaves across global markets, as it signaled that Japan, the last developed market country to insist on low interest rates, was beginning to move towards policy normalization. Previously, the Federal Reserve and the European Central Bank had continued to raise interest rates significantly in order to curb rising prices. However, the Bank of Japan maintained an ultra-low interest rate policy, which led to the expansion of interest rate differentials between Japan and the United States and Europe, and the Japanese yen was sold because it was not conducive to the use of funds.
The rapid depreciation of the yen has caused food and energy prices to soar, severely affecting the economic conditions of households and businesses. At present, although the rapid depreciation of the yen that has pushed up prices has eased, the yen exchange rate is still at a low level, and the soaring prices of raw materials and energy have become a heavy pressure on the Japanese economy . The meeting believed that if the depreciation of the yen is left unchecked, it will severely damage the economy that has not yet recovered from the new crown epidemic. The Bank of Japan's move seems intended to correct the depreciation of the yen that has led to a historic rise in prices and narrow the interest rate gap with the United States, prompting investors to buy yen and sell dollars.
The Bank of Japan decided to adjust its control of the yield curve to improve market functioning and encourage a smoother formation of the entire yield curve while maintaining accommodative financial conditions. The Bank of Japan noted that through these steps, it will work to strengthen the sustainability of monetary easing under this framework to achieve the price target.
Once the Bank of Japan abandons the yield curve control policy (YCC) framework without warning, allowing the 10-year government bond yield to float freely while limiting the policy to controlling short-term interest rates, this policy impact will promote the flow of funds from foreign assets such as U.S. bonds back to Japan, accelerating the sell-off of global assets. If Japan abandons YCC, Japanese stocks will enter a bear market and U.S. and European stocks could fall by 10%.
Tianyan reminds: Before doing foreign exchange transactions, be sure to review the qualifications and official website information of foreign exchange platform to prevent being deceived. If you encounter problems with foreign exchange withdrawals or fraud, you should immediately collect evidence to call the police, and at the same time expose your rights!
