I’m not a fan of bond price pegging. Nonetheless, I currently believe that the BOJ should peg the yield on 10-year JGBs at 0%. And the reason is simple; a few months ago the BOJ promised to peg the 10-year at 0%. With that in mind, this report is worrisome:
Japan’s 10-year yield surged as traders judged the central bank’s expanded bond purchases Friday to be insufficient to cap borrowing costs as global rates advance.
The yield rose as much as 4 basis points to 0.15 percent, the highest since the Bank of Japan implemented its negative rate policy last January. . . .
“It’s not enough,” said Simon Pianfetti, a senior manager in the market solutions department at SMBC Trust Bank Ltd. in Tokyo. “The market will test the BOJ further.” . . .
Kuroda on Tuesday recommitted to his yield-curve control strategy, while pledging to cap bond purchases at 80 trillion yen per year.
That makes no sense. You cannot “commit” to a 0% bond yield, while at the same time “pledging” to cap purchases to 80 trillion per year. Perhaps one of my Japanese readers can tell me if something was lost in translation.
I suspect this confusion largely explains the recent rise in the yen, which is bad news for Japan.