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Oct 30 - 09:55 AM

BofA: In Our Base Case, The BoJ Will Adjust YCC On Tuesday

By eFXdata  —  Oct 30 - 09:27 AM


Bank of America (BofA) anticipates that the Bank of Japan (BoJ) has an increased likelihood of making adjustments to its Yield Curve Control (YCC) in the upcoming policy meeting. While the specifics of such an adjustment remain uncertain, BofA projects that the BoJ may raise the rate for its daily fixed rate operations. However, the central bank is expected to present this adjustment as a preventive measure, emphasizing its readiness to regulate the rate at which yields increase.

Key Points:

  1. Adjustment Expectation:
    • BofA forecasts a high probability that the BoJ will revise its YCC strategy in the forthcoming policy meeting.
  2. Projected Rate Change:
    • If the BoJ decides to make a change, BofA expects the central bank to elevate the rate for its unlimited daily fixed rate operations from the current 1% to 1.5%. For a more in-depth understanding, readers are directed to the "Chart of the day" in the Strategy section which details potential scenarios and their market implications.
  3. Framing the Adjustment:
    • The BoJ is likely to position any potential adjustment as a proactive measure to stabilize the market. By doing so, it will stress its preparedness to regulate the speed at which yields rise. BofA even speculates that the BoJ may augment its bond market operations in the short term to reinforce this point.
  4. Impact on Yields and JPY:
    • BofA's primary perspective is that any incremental policy normalization by the BoJ, particularly tweaks to the YCC, will drive yields higher. However, this will not necessarily translate to a stronger Japanese yen (JPY).

Conclusion: The BoJ's potential adjustments to the YCC underscore the central bank's commitment to market stabilization while gradually navigating policy normalization. Any modifications are expected to be introduced as preemptive moves to maintain market equilibrium. BofA believes that while such changes might influence the yield curve, they won't necessarily boost the JPY. Market participants and investors will be closely monitoring the BoJ's decision, as it has considerable implications for the Japanese financial landscape and global markets.

BofA Global Research


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