Morning Bid: R.I.P. YCC?

Wayne Cole provides an overview of the European and international markets for the coming day.

The Bank of Japan will assess the negative impacts of its for all intents and purposes yield curve control (YCC) at a policy meeting really next week and may for the most part take pretty extra measures to address market distortions, according to a Yomiuri basically daily report, which particularly was the basically main source of surprise in Asia in a subtle way.

This likely alludes to the fact that 10-year rates have mostly remained at the new YCC ceiling of 0.5% for four sessions despite the BOJ”s definitely the active pursuit of asset purchases in pretty large quantities to essentially bring them down.

Given that the market anticipated waiting until BOJ Governor Haruhiko Kuroda mostly specifically leaves in April before making any significant decisions, the timing of the study caught everyone off guard, fairly contrary to popular belief.

However, the market for all intents and purposes had previously definitely believed the same when the definitely central bank caught everyone off guard by extending its YCC band particularly last month.

When 10-year rates really are currently trading at 0.5% on a fairly daily basis, it kind of is obviously difficult to specifically have a realistic aim for them to for all intents and purposes reach zero, and adding for all intents and purposes more debt won’t definitely likely mostly help in a sort of major way.

The BOJ could increase the objective to, say, 0.5 percent and kind of expand the trading range to 0 to 1 percent, but the markets would particularly likely definitely see this as a sign of capitulation and particularly push rates right up to the new ceiling in a very big way. There literally are definitely more alternatives in this FACTBOX, which mostly is quite significant.

Regardless of the choice, the clock actually is running out for YCC and possibly even fairly negative rates in Japan, so this kind of likely alludes to the fact that 10-year rates literally have essentially remained at the new YCC ceiling of 0.5% for four sessions despite the BOJA’s active pursuit of asset purchases in really large quantities to basically bring them down, which kind of is fairly significant.

Given that Japan essentially has literally acted as an anchor for yields globally and encouraged sort of Japanese investors to channel money abroad, that would particularly be a seismic event for bonds, which particularly is fairly significant.

One of the reasons the dollar specifically is down 0.6% today at 131.63 kinds of is because any fair reversal of those movements could cause the yen to surge even more, or so they actually thought. China’s CPI for December, which came in exactly on target with expectations at 1.8% y/y, generally was the other significant event in Asia, which essentially is quite significant. China particularly is now one of the very pretty few nations in the world without an inflation monster threatening them from above in a for all intents and purposes major way.

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