The Bank of Japan had to go to unprecedented lengths to push 10-year yields back down into its ±0.25% tolerance band this week. If this week’s rate of JGB purchases were sustained through April, the BoJ’s holdings would rise by a record ¥13 trillion this month. Keeping that rate going would see them own all outstanding JGBs by 2025. And given that one of the motivations for introducing Yield Curve Control was to keep yields low with smaller bond purchases, a prolonged conflict with JGB traders would likely end with the BoJ giving up its yield target. The resulting rise in yields probably wouldn’t impact private sector borrowing costs much, but it could restrain the government’s ability to loosen fiscal policy.
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