Bank of Japan may further adjust its YCC policyGovernment bond yields are about to reach the 1% upper limit, and the Bank of Japan may further adjust its YCC policy.
Market attention is focused on the actions the Bank of Japan will take regarding the 1% yield cap.
On Tuesday of this week, the Asian economic calendar was filled with various important data releases, with the policy meeting of the Bank of Japan being the focus of traders. On the last trading day of the month, the Bank of Japan is expected to make a minor adjustment to its "Yield Curve Control" policy to effectively tighten monetary policy, which is significant for global markets and policies. This is followed by announcements from the Federal Reserve on Wednesday and the Bank of England on Thursday.
Japanese bond and currency markets:
The BOJ may further adjust its YCC policy to allow the yield on 10-year Japanese government bonds to rise above 1%, and the Japanese yen has been strengthening for the second consecutive trading day, with the 10-year bond yield reaching its highest level in a decade, approaching 0.89%.
Market reactions:
However, based on calculations of the real effective exchange rate (taking into account the impact of negative interest rates and other policies), the yen is the weakest it has been in over 50 years, attracting foreign buyers to purchase assets at relatively cheap prices. The Nikkei 225 stock index fell by 1%. These reactions reflect the market's uncertainty and tension regarding potential changes in the Bank of Japan's monetary policy.
Japanese stock market:
Initially, it saw a significant rise at the beginning of the year, driven by expectations of an improved economic outlook for Japan after years of stagnation. However, concerns about the Bank of Japan tightening monetary policy in the second half of the year have weighed on the market, leading to a decline in the Nikkei index.
As the possibility of the BOJ abandoning its ultra-loose monetary policy has grown, the Nikkei 225 has fallen by 3.6% this month. However, due to many investors betting on the resurgence of the Japanese economy after decades of stagnation, the Nikkei 225 saw an astonishing 27% increase from January to June, reaching a high of nearly 34,000 points.
Market reactions:
This attractiveness of the Japanese stock market to investors is due to factors such as negative interest rates, the large-scale holdings of Japanese government bonds by the Bank of Japan, and the depreciation of the yen.
Japanese inflation:
Inflation in Japan has begun to rise and has exceeded 2%, which is a significant development considering Japan's long-standing struggle with deflation."
