The Bank of Japan caught markets totally off guard with the first signal that a historic policy shift could be on the horizon after decades of ultra-loose settings.
The Japanese yen rocketed and equities in Asia suffered sharp selloffs after the Bank of Japan stunned financial markets by loosening its grip on the benchmark government bond rate, paving the way for a possible departure from decades of easy money policy.
“It does suggest that change is afoot and speculation on a formal change of policy next year will intensify,” said Ray Attrill, head of FX strategy at NAB. “The very fact they’ve done it when the governor just a month or two ago was saying that they had no intention of doing it is clearly significant.”
“The earliest move [for a formal policy adjustment] would be around March-April next year when governor Kuroda steps down and the annual wage negotiations outcomes are known.”Bond yields surged with US 10-year bond yield up 10 basis points to 3.69 per cent. Australian 10-year bond yields jumped a massive 0.25 percentage points to 3.73 per cent. The BoJ has been an outlier in a year defined by aggressive tightening at the hands of the US Federal Reserve and the European Central Bank.
Japan’s monetary policy settings and its relentless bond buying to defend its yield cap have drawn increasing public criticism for distorting the yield curve, draining market liquidity and fuellingMr Kuroda repeatedly said he saw no need for the BoJ to tweak the yield curve control policy, including taking immediate steps to deal with the distortion it was creating in the bond market. His term at the helm of the central bank ends in April.
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