The BOJ adjusted its yield curve control program to now allow for 10-year bond yields to target a band in and around 0.50% (doubling the previous band of 0.25%). That's a sudden change in terms of policy as markets did not expect anything whatsoever from the central bank - not at least until Kuroda's term is up next year.
But I guess he just had to get in one last shot before he leaves for good, eh?
The central bank has been very much committed in defending the 0.25% mark in 10-year yields for the majority of this year, which has an indirect impact in anchoring borrowing costs and served as a sort of benchmark for market sentiment.
However, with the latest change, the bond market globally isn't going to enjoy a pretty run up into Christmas and likely even when we get to the turn of the year at this point. We're also already seeing 10-year Treasury yields jump up by over 9 bps today to 3.684% currently.
The Japanese yen is also a major beneficiary and this will likely tee up a potential for a major unwind in yen pairs going into next year, with USD/JPY already dropping by 2.6% to 133.20 at the moment - its lowest in four months.
Yen-tervention could only work so much and it needed some external reinforcement. It seems like policymakers got that with rising inflation pressures in Japan, allowing for this much needed relief for stakeholders of the currency.
I also mentioned back in May how the SNB and BOJ may not be able to escape the inflation battle and it could prove to be the final straw for markets. As such, look out for more pain in equities before we get settled into accepting this latest change from the BOJ.
