BOJ’s Yield Curve Control Tweak Sends Bond Yields Soaring, Bitcoin Holds Steady

Bitcoin (BTC) held firm above the $29,000 mark on Friday as investors closely monitored the latest developments from the Bank of Japan (BOJ). The central bank’s decision to maintain low-interest rates while making a slight tweak to its liquidity-boosting bond-buying program known as yield curve control (YCC) caused Japanese and U.S. government bond yields to rise.

What’s the Plan?

The BOJ opted to keep the short-term interest rate target at 0.1% and maintained the YCC’s 10-year government bond yield target around 0%. Furthermore, it adhered to its previous decision from December 2022, allowing the 10-year yield to fluctuate by 0.5% above and below the 0% target. However, in a noteworthy change, the central bank clarified that the 0.5% band would function as a reference, not a strict cap, indicating increased flexibility in its approach to yield curve control.

While the BOJ’s announcement appeared to downplay any hawkish implications, market experts interpreted the move differently. Rates strategist Rishi Mishra pointed out on Twitter that the adjustments amounted to a proper YCC tweak, cleverly presented with semantics to soften their impact.

Chris Weston, head of research at foreign-exchange brokerage Pepperstone, noted that the new hard cap is now set at 1%, signaling a more liberal stance on controlling yields.

Pressure and Anticipation Builds

The BOJ’s decision comes on the heels of the International Monetary Fund (IMF) urging the central bank to move away from yield curve control in preparation for future interest rate hikes. Several investment banks had anticipated a widening of the band, with Goldman Sachs warning that a 100 basis-point band might send misleading signals to the market.

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Bitcoin Reacts

In response to the BOJ’s announcement, the Bitcoin price remained relatively stable, hovering around $29,250, with minimal fluctuations. However, bond yields saw an increase, presenting negative cues for risk assets, including Bitcoin. The 10-year Japanese government bond yield rose by six basis points, reaching its highest level since January, while its U.S. counterpart rose by three basis points to 4.03%, following an overnight 13 bps gain.

The BOJ’s decision to ease its grip on the bond market at a time when other major central banks, including the Federal Reserve, are signaling the possibility of higher interest rates for an extended period, could pose challenges for risk assets.

What do you think the future holds for Bitcoin?