BOJ June ‘21 Monetary Policy Meeting out:
No change in YCC framework: policy rate -0.1%, JGB 10Y Yield at “around zero” - however, the “around zero” caveat of “around zero as we define it- no ceiling“ that they snuck in from April policy meeting remains ↓
“without setting an upper limit” + “SO THAT the 10y JGB yield will remain around 0%” ← this makes no sense. Essentially saying “by removing the cap on yields, yields will remain capped and stay at around zero.”
May sound benign- but frankly, removing the upper limit of where 10y JGB yields will be pinned is NOT controlling the yield curve. It’s giving itself an out should yields surge and BOJ finds they somehow can’t mechanically cap yields after all.
BOJ’ YCC on the 10y JGB yield upper bound- the level where BOJ would step in and conduct a fixed rate operation to buy an unlimited amount of JGBs at a fixed level, went from 0.1% → 0.2% → 0.25% → no upper limit. Had they not incrementally nudged up the upper limit over the years, perhaps one might be able to read “no upper limit” as “they have that much control over the long end of the curve.“ But up, up, up, gone = you didn’t have a grasp on it this whole time and now admitting yield curves cannot be effectively controlled.
This was the language that was in place from YCC inception in Sept ‘16 until the last time it was printed in Jan‘21 policy meeting ↓
Again, this isn’t new to this meeting, but just pointing out that BOJ is keeping the “no ceiling on yields“ language from April meeting.
Note to Fed- don’t YCC, you will fail. Just watch the BOJ laboratory and learn.
Also, BOJ is introducing a new fund to finance private sector climate change initiatives, to be rolled out by end of ‘21 ↓