The Bank of Japan (BOJ) recently announced its decision to maintain the short-term policy rate at -0.1%, signaling its commitment to the negative interest rate policy. However, there was a significant change in the BOJ's approach to the 10-year government bond yield.
Previously, the BOJ had set a hard cap of 1% for the 10-year government bond yield. This meant that whenever the yield approached or exceeded 1%, the BOJ would intervene by purchasing bonds to inject liquidity into the market. However, the BOJ has now shifted its stance and considers the 1% upper bound as a reference rather than a strict limit.
This change in approach allows for more flexibility in the yield fluctuations and relieves the pressure on the BOJ to intervene with bond purchases every time the 10-year yield tests the 1% mark. By adopting this new approach, the BOJ aims to create a more stable and sustainable bond market.
The Bank of Japan's decision to maintain the short-term policy rate and revise its approach to the 10-year government bond yield reflects its commitment to supporting the economy while ensuring stability in the financial markets. This change in approach is expected to have a positive impact on the bond market and reduce the need for frequent interventions by the central bank.
