The BoJ’s Christmas surprise – why now and what’s next?
In December, the Bank of Japan surprised markets by widening the allowance corridor for the 10-year JGB yield target, aiming to fortify its Yield Curve Control policy. The shift effectively results in a tightening of monetary policy, although we think the impact on growth will be limited.

What you will learn:
- Despite the BoJ’s aims, the tweak to the YCC policy has heightened speculation over further policy normalisation, pushing the central bank into greater intervention in the JGB market. However, distortions to the yield curve and dysfunction in the JGB market are persisting.
- We still think that without a sustained rise in wages, achieving the 2% inflation target is not yet in sight and the BoJ will stick to its YCC policy, shrugging off continual challenges from foreign investors in H1 2023. In H2, a projected slowdown in growth and inflation together with rising expectations of a Fed pivot should gradually alleviate upward pressures on the yield curve.
- At the same time, however, we now see a rising risk that December’s tweak to the YCC policy may herald the start of more tightening. If pressures on the yield curve persist, the BoJ might be forced to widen the allowance corridor further to buy time.
Tags:
Related Resouces

Post
BoJ holds rates and sets course for QE exit
The Bank of Japan kept its policy rate at 0.5% and announced its exit plan from quantitative easing at Tuesday's meeting. Following a recent spike in ultra-long JGB yields, the BoJ decided to ease off the pace of reducing JGB purchases in FY2026.
Find Out More
Post
Japan’s worsening fiscal outlook raises risk of higher term premium
We expect Japan's fiscal outlook to deteriorate due to weak economic growth and pressure on the government to implement fiscal stimulus. We don't think deficit concerns drove the recent spike in ultra-long Japanese government bond (JGB) yields, but as domestic purchasers reduce their JGB holdings, long-term yields could become more sensitive to fiscal developments in the coming quarters, raising the risk of a higher term premium.
Find Out More
Post
Tariff turbulence will diminish the BoJ’s chance of rate hike
The Bank of Japan kept its policy rate at 0.5% at Thursday's meeting. Considering the significant downgrading of growth and inflation forecasts in its Quarterly Outlook Report, the central bank will likely take a long pause to assess the impact of high global trade policy uncertainty on growth and inflation.
Find Out More