FxWirePro: BoJ stresses importance of YCC with special auctions

With its actions this week, the Bank of Japan (BoJ) showed exactly how important the ‘Yield Curve Control (YCC)’ is for its future monetary policies and exactly how aggressively it’s going to defend it. The central bank introduced the ‘Yield curve control’ or YCC back in 2016, under which it would influence the short end of the curve using traditional tools such as the interest rates and would control the longer-term yield (10-year) using its bond purchases. If the 10-year yield significantly moved lower than its target it promised to flood the market with bonds and purchase an array of bonds if the yield moved higher than the target.

The yield on 10-year Japanese government bonds, which moves opposite to price, pushed higher and back above the 0.1 percent mark after briefly breaching that level on Thursday for the first time in nearly 18 months.

And the central bank responded aggressively throughout the week, with the upward pressure on the yield over speculation that the central bank might finally reverse its ultra-loose monetary policy. On Monday, the central bank offered to buy an unlimited amount of 10-year Japanese government bonds at 11 basis points and on Friday, in a special auction, it offered to buy an unlimited amount of Japanese bonds (10-year) to keep the yield in check. However, there were no sellers as the yield slipped lower on the announcement itself. The yield is currently at 9.8 basis points for 10-year government bonds.