Everyone knows that the end of yield-curve control is coming in Japan. The central bank—whoever is at its helm—could at least kill off the policy before it loses a lot more money
Save time by listening to our audio articles as you multitaskUnfortunately, the regime change is not off to a good start. Lifting the cap has only increased bets against it. Since December the Bank of Japan has had to defend the higher cap by buying bonds worth a staggering $240bn, nearly 6% of Japan’sand about three times the pace of purchases in the preceding three months. The bank seems determined to keep the cap in place until a change of leadership is complete. Doing so is a costly mistake.
As inflation has risen, however, such caps have lost their credibility. In 2021 Australia suddenly abandoned its experiment with yield-curve control as investors began betting that interest rates would need to rise to fight inflation. Investors know that Mr Kuroda’s successor is likely to adjust and eventually abandon the policy—especially if it is a hawk, such as Yamaguchi Hirohide, a former deputy governor. The result has been rampant speculation, forcing the bank to hoover up more bonds: exactly what yield-curve control was supposed to avoid. The bank now owns more than half the Japanese government-bond market, including two-thirds of bonds with a maturity between one and 11 years.
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