Yen Surges as Kuroda’s Yield Cap Shock Heralds BOJ Normalization

Yen Surges as Kuroda’s Yield Cap Shock Heralds BOJ Normalization

  • BOJ widens movement range around 10-year bond yield target
  • Yield on sovereign notes due in a decade almost doubles


Bank of Japan Governor Haruhiko Kuroda shocked markets by doubling a cap on 10-year yields, sparking a jump in the yen and a slide in government bonds in a move that helps pave the way for possible policy normalization under a new governor.

The BOJ will now allow Japan’s 10-year bond yields to rise to around 0.5%, up from the previous limit of 0.25%, according to a policy statement Tuesday. 


The central bank said the move would enhance the sustainability of its monetary easing, but many economists interpreted the move as laying the preliminary groundwork for exiting a decade of extraordinary stimulus policy.

The central bank kept its 10-year yield target unchanged at around zero percent and left its short-term interest rate at -0.1%. It also said it would significantly increase its bond purchases to 9 trillion yen ($67.5 billion) per month compared with the currently planned 7.3 trillion yen.

The yen strengthened to as much as 132.68 against the dollar, compared with 137.16 immediately before the announcement. The 10-year yield jumped to as high as 0.46% from 0.25% after the decision.

Japanese bank stocks surged in afternoon trading as investors expected improved earnings for financial institutions. Mitsubishi UFJ Financial Group Inc. rose as much as 9.6%, the most in six years, while Mizuho Financial Group also soared. Overall stocks ended down 1.5%.

The ripple effects also spread far outside Japan, with US stock-index futures slumping and Treasury yields climbing. 

Source: Bloomberg

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