The Ueda BoJ decides to wind down yield curve control (YCC) at the April 2024 Policy Board meeting, having concluded that it is now more likely to achieve the 2% price stability target in a sustainable and stable manner. It opts to continue NIRP and its flexible JGB purchases because there is still some uncertainty over whether the target will be achieved.
In view of the above, we have revised our main scenario for the 10-year JGB yield as shown below, raising our forecast range for Apr-Jun 2024 from 0.4% - 0.7% to 0.5% - 0.8% (Graph 1). See the "Market Forecast" at the end of this report for our projections of other key yields.
However, any such rise in bond yields is likely to be both temporary and limited in scope. This is because when the BoJ announced a more flexible approach to YCC on July 28, the market viewed the decision (to treat the ±0.5% range as a reference and not a rigid target, and to effectively increase the ceiling for the 10- year yield to 1.0%) as marking a de facto end to YCC and then priced this in. The official discontinuation of YCC does not have prolonged repercussions because it does not come as a surprise. Worries about an end to NIRP eventually fade due to uncertainty surrounding the Bank’s ability to achieve the 2% price stability target in a sustainable and stable manner. Tapering concerns diminish as well because the BoJ commits to continuing its flexible bond purchases. After core CPI inflation slows starting in Jul-Sep 2024,4 the 10-year JGB yield moves lower in sympathy with its US equivalent5 and trades with a downward bias in a range of 0.4% to 0.7%. - MUFG
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