Economists at MUFG Bank discuss when the Bank of Japan could remove YCC as a policy tool.

Falling inflation and yields globally will likely offer the BoJ the time to act

“Market expectations on the timing of a YCC change have been pushed back following Governor Ueda’s dovish communications following his first BoJ meeting in April. But we maintain that YCC has passed its sell-by-date and while it remains unclear whether price stability at 2% can be achieved, the BoJ will still move to widen the band or scrap it completely.”

“The BoJ will want to avoid a similar outcome to the RBA and will likely move to abandon YCC at a point when markets are not speculating on a move. That could mean YCC ends as global yields decline later this year as inflation risks recede. In such a scenario, USD/JPY will likely be falling.”

“The BoJ may well decide to scrap YCC when the markets least expect it and speculation is low. So falling inflation and yields globally will likely offer the BoJ the time to act.”