Commerzbank:
Eurozone government bond yields rise after the Bank of Japan introduced yield curve control with greater flexibility, keeping the 10-year yield target around 0%.
The market has little room to breathe with the BOJ surprise adding to the bearish momentum, which already set in yesterday afternoon when U.S. Treasuries came under pressure when sources about today's BOJ tweak emerged
MUFG:
Under the new regime with greater flexibility, the BoJ will now strictly cap 10-year JGB yields by fixed-rate purchase operations at 1.0%. It means that even though the BoJ will continue to allow 10-year JGB yields to fluctuate in the range of around plus and minus 0.5ppts from 0.0%, the upper and lower bounds of the range are now used as "references" and "not rigid limits" in its market operations
While the BoJ took action to make YCC more flexible in line with MUFG's expectations, it also emphasized that the sustainable and stable achievement of the price stability target hasn't yet come into sight, and as such will patiently continue with monetary easing.
UBS:
Bank of Japan Governor Kazuo Ueda immediately tries to put the tweak in YCC into context - it isn't a tightening. He emphasizes right out of the blocks that stable inflation with wage growth is not yet in sight. He said it was important to "enhance" the sustainability of easing. Note that in other works, the YCC change allows aggregate policy to be easier for longer with fewer side effects.
Ueda continues with the sustainability of policy narrative, saying that in fact the BoJ won't hesitate to ease further if necessary. He is really laying the this isn't tightening" on as thick as he can.
He said the BoJ's decision as to whether to step into the JGB market will be informed by the speed of any yield move as well the the level of yields. But in any case he didn't expect that yields would rise to 1%.
Citi:
The BOJ's flexibility on its yield-curve-control policy may put upward pressure on JPY against USD and on JGB yields
If BOJ's decision doesn't bring an end to JPY weakness, market participants should be prepared for the BOJ to resort to short-term rate increases, our economist regards the probability of this as being very low.
The BOJ may attempt to use flexibility on the 10-year JGB yield in full to counter JPY weakness if JPY's depreciation is deemed excessive
SEB:
The YCC adjustment should allow the 10y yields to rise further in the coming weeks, dampening USD/JPY in the process. Since the policy announcement, the 10y yield has risen and is holding on to gains at around 0.547%.
This lowers the risk of strong gains in Japanese yields, easing the pressure on BOJ to aggressively defend its newly-introduced reference range. For now, we maintain our USD/JPY forecast of 130 by end-2023
ING:
We would have probably seen bigger market moves if the CPI forecasts had been raised substantially. As it is, the FY24 and FY25 forecasts remain below 2.00% and in effect justify ongoing easing from the Bank of Japan. This suggests today's YCC adjustment could have been more technical in nature. However, the market is now going to have to take on board the greater flexibility in the BoJ's policy-making - raising expectations of some follow-up move at the 31 October meeting when new CPI forecasts are released.
We are bearish on USD/JPY in the second half - though largely on the back of the dollar story. Based on today's developments we see no reason to change our forecasts for 135 and 130 for the end of September and end of December, respectively.
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