If you want to see why the Bank of Japan’s yield curve control — and whether it survived a change of governorship at the central bank — is a hugely important question for the entire world, take a look at this killer chart.
This comes to us from Apollo’s chartmeister (and chief economist) Torsten Sløk, and shows how the Bank of Japan is now buying so many bonds to defend its yield ceiling that its counteracting all the balance sheet shrinkage by the Fed, BoE and ECB.
As Sløk says:
BoJ purchases of JGBs to keep yields low are now bigger than Fed QT, and the result is that central banks are once again adding liquidity to global financial markets, which was likely contributing to the rally in equities and credit in January. With YCC still in place in Japan, QE will continue to support global financial markets.
We’re (very) unconvinced that the BoJ continuing to hoover up the GB market has played a meaningful role in the global market rally we’ve seen since the autumn. That looks far more driven by signs that inflation is slowing, economic growth is firmer than expected, and central banks are becoming less aggressive about tightening monetary policy.
But the BoJ’s actions still clearly matter to the bond market. Its policy of keeping Japanese government bond yields rooted near zero has acted as an anchor for the entire global fixed income complex. At the very least that has helped moderate the rise in bond yields driven by faster inflation and punchy interest rate hikes elsewhere.
The new incoming BoJ governor Kazuo Ueda has been tight-lipped on what he thinks about the current monetary stance, only telling reporters that it was “appropriate” and that “for now, I think it is necessary to continue easing measures”.
But if YCC is finally killed off — or even just tweaked — it will probably be a major event for markets everywhere.
Source: Economy - ft.com
