The Bank of Japan has shocked markets around the world by unexpectedly widening the cap on 10-year Japanese government bond yields.
The central bank adjusted the yield curve control policy to allow the yield on the 10-year
Japanese Government Bond (JGB) to move 50 basis points on either side of its 0% target, up from 25 basis points previously.
The Bank of Japan said the change is aimed at softening the impact of monetary stimulus measures. However, the sudden and unexpected decision has led to a sell-off in bonds and stocks around the world.
Japan’s central bank introduced its yield curve control in 2016 with the intention of lifting inflation towards its 2% target after a prolonged period of economic stagnation.
At the same time as it adjusted its yield curve control, the Bank of Japan also announced that it is leaving its benchmark interest rate unchanged at -0.1%.
That decision stands in stark contrast to other central banks around the world that are continuing to raise interest rates aggressively to slow inflation.
Inflation in Japan is forecast to reach 3.7% annually for the month of November, which would be a 40-year high in the country but well below the levels seen in other countries this year.
