Bank of Japan Pivot Bomb – Extension of 10-year JGB Band to 0.5% (from 0.25). yen up

The yen has risen and the Nikkei (Japanese stocks) has plummeted.

The first headlines were that the BOJ left its policy unchanged, which it has done.

  • maintain a target of -0.1% for short-term interest rates
  • and a 0% cap on the 10-year bond yield

BUT they extended that range where they allow the 10-year JGB to move from 0.25% to 0.5%. This is indeed a long-awaited BOJ pivot. Certainly a mini-pivot, but with nothing expected until April, it matters.

Other key points from the statement:

  • Increased bond purchases to JPY 9tln/month in Q1
  • will verify the operation of the Yield Curve Control (YCC).
  • make additional JGB purchases on December 22nd

In widening the range for the JGB target, the BOJ says that “the functioning of bond markets has deteriorated… If these market conditions persist, it could have an adverse impact on financial conditions.”

JPY

JPY

The Japanese Yen (JPY) is the official currency of Japan and, at the time of writing, is the third most traded currency in the world, behind only the US Dollar and the Euro for forex traders as a safe haven currency. Originally introduced in 1871, the JPY has a long history, surviving multiple world wars and other events. This was followed by the creation of the Bank of Japan (BoJ) in 1882 and full supervision of the JPY by the Japanese government only in 1971. Japan has historically maintained a policy of currency intervention that continues to this day. The BoJ also maintains a policy of zero to near-zero interest rates and the Japanese government has previously pursued strict anti-inflationary policies. What Factors Affect the JPY? The BoJ’s role mentioned above has dramatically shaped the JPY in the FX markets. Any further changes in monetary policy by the central bank are closely monitored by forex traders. In addition, the overnight call rate is the most important short-term interbank rate. The BoJ uses the call rate to signal monetary policy changes, which in turn affect the JPY. The BoJ is also buying both 10- and 20-year Japanese Government Bonds (JGBs) on a monthly basis to inject liquidity into the monetary system. The resulting yield on the benchmark 10-year JGBs helps serve as a key indicator of long-term interest rates. Economic data is also very important for the JPY. The most important of these publications in Japan are gross domestic product (GDP), the Tankan survey (quarterly survey on business climate and expectations), international trade, unemployment figures, industrial production and money supply (M2+CDs).

The Japanese Yen (JPY) is the official currency of Japan and, at the time of writing, is the third most traded currency in the world, behind only the US Dollar and the Euro for forex traders as a safe haven currency. Originally introduced in 1871, the JPY has a long history, surviving multiple world wars and other events. This was followed by the creation of the Bank of Japan (BoJ) in 1882 and full supervision of the JPY by the Japanese government only in 1971. Japan has historically maintained a policy of currency intervention that continues to this day. The BoJ also maintains a policy of zero to near-zero interest rates and the Japanese government has previously pursued strict anti-inflationary policies. What Factors Affect the JPY? The BoJ’s role mentioned above has dramatically shaped the JPY in the FX markets. Any further changes in monetary policy by the central bank are closely monitored by forex traders. In addition, the overnight call rate is the most important short-term interbank rate. The BoJ uses the call rate to signal monetary policy changes, which in turn affect the JPY. The BoJ is also buying both 10- and 20-year Japanese Government Bonds (JGBs) on a monthly basis to inject liquidity into the monetary system. The resulting yield on the benchmark 10-year JGBs helps serve as a key indicator of long-term interest rates. Economic data is also very important for the JPY. The most important of these publications in Japan are gross domestic product (GDP), the Tankan survey (quarterly survey on business climate and expectations), international trade, unemployment figures, industrial production and money supply (M2+CDs).
Read this term is up, USD/JPY plummeted to around 134.30 while the Nikkei fell (futures trading is active, down over 4%, physical is closed for the lunch break… traders are getting indigestion as we speak)

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