Bank of Japan Adjusts Yield Curve Control Policy Amid Yen Weakening

The Bank of Japan (BOJ) has announced modifications to its yield curve control (YCC) policy in its latest update on Tuesday. The revised policy permits 10-year Japanese government bond (JGB) yields to exceed 1%, while still aiming to maintain a target of 0%. This change marks a notable departure from the BOJ’s former approach, which involved purchasing government bonds to keep long-term interest rates low.

This adjustment follows a policy expansion in July that broadened the yield target band by 50 basis points to 1%, allowing fluctuations of plus or minus 0.5 percentage points from the target.

Despite maintaining the short-term policy rate at -0.1%, core inflation—excluding food prices—has remained above the BOJ’s 2% target for the past 18 months, falling below 3% in September for the first time in over a year.

The BOJ’s decision to revise its YCC policy is in response to the ongoing weakening of the yen. The central bank’s strategy, which contrasts with the rate hikes implemented by other central banks, has faced scrutiny for contributing to market distortions and devaluing the yen.

Additionally, the BOJ’s 2% inflation target has been surpassed consistently for the last 12 months, amplifying the effects of widening interest rate differentials and reducing overseas purchasing power. The long-term interest rate cap was raised from 0.5% to 1% in July due to growing inflation pressures and concerns about market volatility.

This article was generated with the support of AI and reviewed by an editor.