Investors are already testing the Bank of Japan’s commitment to its policy settings by pushing bond yields to their newly enforced limits.
Investors are already testing the Bank of Japan’s resolve by pushing bond yields to their limits, one day after the world’s last bastion of super-easy monetary policyJapan’s two-year government bond yields rose above zero for the first time since 2015, and the 10-year bond rate climbed to its highest in 15 years at 0.46 per cent.The Bank of Japan stunned financial markets on Tuesday when it unexpectedly widened the band within which it allows the 10-year government bond yield to fluctuate.
“The BoJ insists [yesterday’s shift] is not about policy tightening or the inflation outlook, but at the end of the day, the bond market is taking it as the initial move on the path towards monetary tightening,” said Damien McColough, head of rates strategy at Westpac.He noted the Bank of Japan’s action was the “right” approach compared with the Reserve Bank of Australia,when the bond market stopped believing the central bank’s pledge to keep rates near zero.
The impressive move in Japan’s 10-year bonds pulled equivalent US Treasury yields 0.12 percentage points higher at 3.71 per cent, and Australia’s 10-year yields jumped 0.17 percentage points to 3.74 per cent. The yen gained nearly 4 per cent against the US dollar, which fell as low as ¥130.58, a level it last reached in August. It steadied at ¥131.72 on Wednesday. The Australian dollar tumbled 4.1 per cent to a nine-month trough of ¥87.09 in the worst session since 2016, after investors unwound short yen positions. It steadied at ¥88.09.
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