BoJ will reportedly discuss tweaking its YCC policy at a policy board meeting on Friday to let long-term interest rates rise beyond its cap of 0.5% by a certain degree in what would be a shift towards a more flexible policy approach, according to Nikkei

• Even more flexible YCC risks rates rising more than BoJ intends, forcing it to step in with big JGB purchases.


• BoJ would consider timing of any such moves carefully after gauging outlook for long-term yields following a policy shift.

Via Nikkei

Reaction details (18:27)

• Over the space of 15 minutes USD/JPY fell from 140.80 to lows of 139.40 before paring somewhat to 139.70.


• T-Notes fell from 111-14 to lows of 111-03 before paring to 111-11.


• E-Mini S&P Futures fell from 4625 to 4605.

Analysis details (18:41)

• The BoJ meeting is due on Friday, full Newsquawk preview here
  


• Last Friday, Reuters reported the BoJ is leaning towards keeping its yield control policy unchanged at the upcoming meeting, according to sources.


• Sources added that YCC needs to end at some point. Though, the timing is not now.  Another source said that even if tweaks were made, it would likely be a minor fine-tuning to make YCC sustainable.   


• The report also noted there is no consensus within the BoJ on how soon it should begin phasing out stimulus; many policymakers see no imminent need for fresh steps given the 10yr yield is trading stably within the 0.50% cap. Adding the BoJ can wait until there is more clarity on whether a hard landing can be avoided and allow for further wage increases next year.  


• Sources also reported the BoJ is expected to revise up core inflation forecasts for FY23; though, FY24 & FY25 are expected to be largely in line with current projections.

27 Jul 2023 - 18:04- Fixed IncomeImportant- Source: Nikkei