Market stunned as BoJ doubles 10y yield band
OVERNIGHT NEWS
# Risk off, yields and JPY take off after BoJ tweaks yield curve policy, widens band for 10y JGB by 25bp. USD/JPY and EUR/JPY slump 2.8%. 10y JGB yield +19bp to 0.444%, 10y UST +8bp at 3.67%, 10y Bund +6bp at 2.27%. Euro Stoxx futures -0.8%.
# BoJ expands 10y JGB yield trading band to +/-0.50% from +/-0.25%, maintains yield target at about 0% and policy rate at -0.1%. Governor Kuroda says wider band is to enhance effectiveness of curve control, not tightening in monetary policy. BoJ will increase bond purchases to Y9tn pcm from Y7.3tn. Inflation not forecast to reach 2% in FY23.
# Day ahead: US housing starts, building permits. ECB speakers Muller, Kazimir. Euro area current account. Hungary CB f/c to keep rates on hold, UK 3y gilt auction.
# FX Pulse: King in 2022 but dollar turned in 4Q.
# Nikkei -2.5%, EUR 10y IRS +6bp at 2.90%, Brent crude +0.3% at $80.05/b, Gold +0.2% at $1,794/oz.
10y JGB yield surges after BoJ doubles band to +/- 0.50%


The BoJ stole the show overnight after a surprise change to its YCC policy, widening the band for the range of the 10y yield target to +/- 0.5% vs 0.25% before. While this was accompanied by increased bond purchases and Kuroda downplaying the decision as policy tightening, it has been enough to rattle the global bond market and allow JPY to rally over 3%. However flows were quiet over the European morning session, symptomatic of year end/holiday market conditions. There were few catalysts overnight, with just ECB speakers continuing their hawkish rhetoric. Eurozone Consumer Confidence is due at 10:00 EST, which should show further improvement. Ahead for the day, we get some secondary data in the US – Housing Starts and Building Permits MoM print at 08:30 EST for November, where our economists expect modest declines. We don’t expect markets to pay much attention to this, nor Canadian Retail Sales for October at the same time. Politics continue to be a focus in EM. In Brazil, the Lower House is set to vote on the Spending Bill at 09:00 local time, where 308 out of 513 votes are required for approval. While our economists’ base case is an approval, if a decision is not made by the end of the week, the approval could delay to 2023. Peru Congress will continue debating on early elections. |