After surprise tweak, what now for BOJ's yield curve control?

Since 2016, the BOJ has guided short-term interest rates at minus 0.1% and the 10-year government bond yield at around 0% in action known as yield curve control . It has also set an allowance band of 0.5% above and below the 10-year yield target.. But it watered down the band to a "reference" rather than a "rigid limit," and said it will allow the 10-year yield to move above the cap as long as it stays below 1.0%.

However, political considerations also likely played a part. A weak yen against the U.S. dollar has become a headache for the government by boosting household living expenses via higher import costs. Moreover, currency intervention has been hard to justify with recent yen movement being fairly moderate.

Policymakers will scrutinise data to see whether the economy can weather global headwind and allow firms to keep raising prices and wages next year.

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