BOJ Abandoning YCC Sparks Japanese Bond Market Rise

The Japanese bond market has experienced a significant rise from its engineered financial repression, which led to numerous problems and distortions. The 10-year Japanese Government Bond (JGB) yield rose to 3.02% today, the highest since August 1996. This is after two decades of central-bank engineered financial repression, including the worst inflation in four decades.

The BOJ's Yield-Curve Control (YCC), a specific form of quantitative easing, was used from mid-2016 through mid-2021 to keep long-term yields low. However, reality hit when soaring inflation and the collapsing yen forced the BOJ to abandon YCC and veer into rate hikes and quantitative tightening (QT). This has allowed the Japanese bond market to rise from the grave.

The 10-year JGB yield is still very low considering Japan's problematic fiscal situation and its huge mountain of government debt, measuring roughly 248% of GDP. The reason it remains low is that the BOJ still sits on a gigantic pile of JGBs, weighing heavily on the bond market.