The Fed and the ECB have been hogging the spotlight this week but one should also be aware that the BOJ has been rather active in markets, in trying to defend its yield curve control policy.
The Japanese central bank have stepped in to buy JGBs across the board in order to try keep the pressure off 10-year yields from breaching its implicit cap at 0.25%. It is sort of working but not exactly as yields are straying offside a little in the past few days:
The BOJ is certainly feeling the heat and the yen is not going to find much reprieve if this keeps up. Ever since late March, it has become a norm for the central bank to step in to try and alleviate the selling pressure in JGBs. And the longer this continues, don't expect the yen to find much relief. As mentioned back then:
"The issue with intervening too often here is that it loses its perceived "effectiveness". It sort of draws untoward attention to the current situation with the yen and that could cause the currency to weaken further."
At the time, USD/JPY was approaching 125.00. We're now almost 1,000 pips up from there.
The only bright spot so far this week is that the BOJ has managed to calm down the belly of the beast. But again the question will be, for how long? Here's a look at 5-year and 7-year yields after the surge earlier in the week:
