Take a look at how the markets reacted after the Bank of Japan modified its Yield Curve Control (YCC) framework. YCC is when a central bank targets a long-term interest rate and then buys or sells as many bonds as necessary to hit that target rate.

1. MACRO MATTERS
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How Bank of Japan (BOJ) Spooked Global Financial Markets
Data source: Gavekal Research
Announced in Sep 2016, YCC is an easy money framework of the Bank of Japan that controls short-
term and long-term yields with an aim to bring down real rates and prop up economic activity.
How it works?
-0.10%
1D 3M 6M 1Y 3Y 5Y 10Y 15Y 30Y
BOJ’s Yield Curve Control Visualized
+0.5%
-0.5%
The BOJ applies negative 0.10% on
current account balances of banks. In
other words, it charges banks when
they park money with the BOJ.
It also buys/sells JGBs to ensure the
10-year JGB trades in a yield range of
+/- 0.25%.
On Dec 20, 2022, the JGB widened
the 10Y JGB yield range to +/- 0.5%.
0%
Increase in JGB yields may put pressure on global bond yields. The move would also strengthen the
Yen, making Japanese exports costly and lessen attractiveness of the Yen carry trade.
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
1M 3M 6M 9M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 15Y 20Y 30Y 40Y
The Odd JGB Yield Curve (Dec 19, 2022)
Markets reacted sharply after the BOJ modified its Yield Curve Control (YCC) framework, allowing the 10-
Year Japanese Govt. Bond (JGB) yield to fluctuate up to 0.50% -- a move signaling at higher interest rates
combined with an ultra-loose monetary policy. So what is Yield Curve Control?
For illustrative purposes only