Research Briefing | Nov 7, 2022

Where next for BoJ’s yield curve control?

Japan: Where next for yield curve control?

The credibility of the BoJ’s YCC policy is now being questioned and economists are raising concerns about the global impact of a possible exit from the framework. Recently Governor Kuroda admitted that “it could be an option to give more flexibility to YCC policy when achieving the 2% goal in a stable manner is in sight.” We project that the BoJ is unlikely to have such a chance in the foreseeable future and the BoJ will and can keep 10-year yields within the target band of +/- 0.25%. But it’s also true that the negative side-effects of the YCC policy have been increasing. The recent UK experience with surging gilt yields may give Kuroda’s successor second thoughts as to how to proceed with an eventual exit.

What you will learn:

  • We think there is a slim chance that the Bank of Japan will adjust its Yield Curve Control policy when the upward pressures on JGB yields and the terms of trade shock recede in the coming years. 
  • Given the state of the economy and Japan’s fiscal position, the only possible adjustment will be a shift up of the yield curve with more flexibility in yield formation. This could be achieved by abolishing the negative interest rate policy and widening the target range for 10-year yields.
  • The longer it takes to adjust policy the more difficult it will be, with a rising risk of disruptive repercussions. The YCC policy has given the government strong incentives to maintain the status quo, which could ultimately lead to financial or fiscal crises down the road.
Back to Resource Hub

Related Resouces


Short-term outlook for cities deteriorates

Many cities in the world's advanced economies will enter recession in 2023, with soaring inflation and tightening monetary and fiscal policy driving down demand. In contrast, the majority of cities in emerging economies will still enjoy robust economic growth.

Find Out More


Look for an L-shaped property recovery with a long tail in China

Policies aimed at managing China's housing slump have led investors to query the shape and depth of a market correction. We think a meltdown is unlikely and that China's housing market will instead undergo a protracted L-shaped downturn.

Find Out More


Easing supply hurdles won’t offset falling industrial demand in APAC

We earlier argued that Asia’s manufacturing activity has been impacted more by demand than by supply-side pressures, due to strict Covid-related policies. Supply constraints in Asia have been less acute than in the US and Europe, and we had forecast resilient industrial growth in 2022 and 2023 as regional demand recovers. But the global growth outlook has deteriorated since then. Following our recent downgrade to 2023 GDP growth forecasts for most Asian economies, we now expect weaker industrial growth in Asia. That said, there will be divergences across the region.

Find Out More