Though widely expected by most analysts, the Bank of Japan decision sent the yen and local bond yields tumbling
The Bank of Japan maintained ultralow interest rates on Friday and held off making changes to its controversial bond yield control policy, leaving options open ahead of a leadership transition in April.
At its two-day meeting that ended on Friday, the BOJ maintained its short-term interest rate target at –0.1 per cent and that for the 10-year bond yield around 0 per cent. The benchmark 10-year Japanese government bond yield pulled back sharply from the BOJ’s 0.5 per cent ceiling to hit 0.385 per cent, its lowest since Jan. 24. The yield on the 368th 10-year note turned negative in a fresh sign of the severe market distortion caused by YCC.
“The BOJ will likely abandon its 10-year bond yield target, while maintaining negative interest rates, to arrest distortions in the yield curve,” he said. Kuroda also said he expects market function to gradually improve by conducting “flexible” market operations, underscoring the BOJ’s intention to deal with distortions in the yield curve with existing tools rather than by overhauling YCC.
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