Following the yen-dollar exchange rate exceeding 150 yen on the 20th, observations were raised that the Bank of Japan (BOJ) could revise its monetary policy as Japan’s 10-year Treasury bond rate approached 1%. With a sense of crisis that exchange rates and government bond rates could exceed the risk level, the BOJ is likely to consider revising the yield curve control policy (YCC) at this month’s monetary policy meeting.
As of 9:22 a.m. on the 23rd in the Tokyo foreign exchange market, the yen per dollar was 149.84 yen. After hitting 150 yen at 5 p.m. on the 20th, the yen-dollar exchange rate fell below 140 yen again two minutes later, repeating a slight fluctuation in the 150 yen face. The 10-year Treasury yield also hit 0.845% on the 20th, the highest in 10 years. On the 23rd, it hit 0.857% in early trading, rewriting its intraday high.
Due to the falling yen and soaring interest rates on government bonds, there are reportedly calls within the BOJ to revise the YCC policy. YCC is a policy of purchasing unlimited government bonds to keep long-term interest rates at a certain level. Earlier in July, the BOJ announced a plan to keep the government bond rate cap at 0.5% but allow interest rates to rise up to 1% depending on market movements. In other words, government bonds will be purchased indefinitely from the point of exceeding 1%.
The Nihon Keizai Shimbun reported that the BOJ is mainly discussing ways to discard the 0.5% ceiling on government bond rates or raise the 1% ceiling on government bond purchases.
In addition to the yen and interest rates, the BOJ is reportedly considering the possibility that the U.S. Federal Reserve could raise interest rates further within this year. The BOJ is concerned that a hike in the U.S. benchmark interest rate could widen the interest rate gap between the U.S. and Japan, putting pressure on the yen’s depreciation. Recently, Fed Chairman Jerome Powell said the U.S. price volatility is too high and suggested that interest rate hikes could be resumed in the future.