Economists at Commerzbank explain why JGBs are yielding around 0.50% – and what that tells us about the BoJ.

Born yesterday?

“Because the impression arises that the BoJ’s YCC is changing along the lines of a ‘leaning against the wind’, selling pressure for JGBs does increase. The BoJ has to meet this pressure with increasing levels of JGB purchases. This is the sticking point of the BoJ’s line of argument.”

“Fewer JGB purchases would have only been the result if the BoJ could have illustrated credibly that 0.50% was going to be the limit in perpetuity. As it did not do that, it has now achieved the opposite of what it stated as its motivation. That means there are only two possible interpretations: either its motivation was a different one: the beginning of the end of its ultra-expansionary monetary policy. Or the Japanese central bankers have so little understanding of the market that one has to assume they were born yesterday.”