Investment banks are warning that the Bank of Japan (BOJ) could adopt a more relaxed approach towards the country’s bond markets.
This approach may see the BOJ modify the Yield Curve Control (YCC) policy, a policy which was implemented during Governor Haruhiko Kuroda’s tenure with the objective of maintaining the 10-year Japanese Government Bond (JGB) yield at approximately zero.
Source: RBCwealthmanagement
Despite the policy being widely considered successful, there is a growing belief that the BOJ might deviate from it. Pierre-Olivier Gourinchas, the chief economist of the International Monetary Fund, shares this perspective on Japan’s current economic situation, which supports the idea of a potential shift away from the existing policy.
He said: “Right now, the risk is probably on the upside, that maybe inflation pressures will continue to remain above the target… Our advice for Japanese authorities there is that right now, monetary policy can remain accommodative, but it needs to prepare itself for the need to maybe start hiking.”
Speaking further, he encouraged the BOJ to “be a bit more flexible and maybe move away from the yield-curve control that it has now”.
Other notable personalities and firms betting in favor of the BOJ relaxing its grip on the bond market include UBS economist Masamichi Adachi, Goldman Sachs, JPMorgan, Nomura, BNP Paribas and Morgan Stanley MUFG.
Speculations of volatility for crypto
As is often the case, traders are cautious about how the BOJ’s decision on Friday could influence the cryptocurrency market. Predictions of a possible easing of policy by the BOJ have sparked speculations of incoming volatility in the cryptocurrency market.
While this scenario may be plausible, there can be exceptions. For instance, following the recently concluded FOMC meeting, there was minimal activity and volatility compared to the previous meeting when the feds paused rate hike, triggering a significant market selloff.
The market has now recorded marginal volatility ahead of the BOJ’s rate decision.
At the time of writing, the total market capitalisation is up 1.35% in the last 24 hours, standing at $1.19trillion. This is mostly owing to the 1.06% surge in Bitcoin price in the same timeframe.
Altcoins have also recorded marginal gains. Ethereum is currently up 1.35% while Solana and XRP have gained 6.2% and 2.45% respectively.
