The Bank of Japan (BOJ) has made a dovish adjustment to its Yield Curve Control (YCC) policy, leading to a weakened Japanese yen (JPY) against G-10 and Asian currencies. The adjustment has increased flexibility by placing a 1.0% upper end on the 10-year Japan Government Bonds (JGB) yield range as a reference rather than a cap. This move comes amid Wall Street's overnight gains and has sparked risk-on sentiment in the market.
Market participants are now closely watching the BOJ's next decision, which could see the 10-year JGB yield rise above 1%. RBC (TSX:RY) Capital Markets predicts this potential policy adjustment is already reflected in market responses. Furthermore, they question if another such adjustment could influence the USD/JPY rate, given the significant disparity between U.S. and Japanese rates.
Following these developments, the USD/JPY and EUR/JPY rates rose by 0.2% to 149.40 and 158.51, respectively. The BOJ's decision to leave the Interest Rate on Excess Reserves (IOER) unchanged but remove the 1.0% ceiling on YCC has led analysts to predict a possible formal removal of the YCC mechanism due to uncertainty about BOJ's intervention in the JGB market.
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