BOJ Loses Control Of Bond Market As New YCC Band Breaks Amid Selling Panic

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by Tyler Durden
Friday, Jan 13, 2023 - 10:14 AM

Overnight the Japanese yen soared (if not quite as much as it did last month when the BOJ unexpectedly doubled the trading band of its Yield Curve Control to +/- 0.50% sparking the biggest surge in the Japanese currency since LTCM and the 1998 Asian Crisis), after Japan's Yomiuri reported that the BoJ is to review the side effects of its massive monetary easing at its policy meeting next week and may take additional steps to correct distortions in the yield curve due to skewed interest rates despite last month's tweak in its bond yield control policy. Translation: there is a chance the BOJ will once again "surprise" the market with yet another YCC tweak. The news predictably unleashed a surge in the yen as it would mean outgoing BOJ head Kuroda will need to buy even less bonds, inject less liquidity, and implicitly prop up the currency; as of 8:00pm ET, the USDJPY had tumbled as low as 128.66 from 132 yesterday, before bouncing modestly just above 129.

Of course, the offset within Japan's impossible dilemma - which as regular readers know states the BOJ can have a strong yen or bond market stability but not both at the same time - is that a stronger yen means not only weaker exports and less inflation (which may be good for Japan now but will be anything but once deflation returns in a few months), but also bond market chaos.