Bank of Japan Tweaks Yield Curve Control, Jolting Yen

Policy Shift Reflects Growing Pressure From Rising Inflation

Yen Initially Plunges, Then Rebounds as Market Digests Surprise Move

The Bank of Japan (BOJ) on Wednesday made a surprise tweak to its yield curve control (YCC) policy, widening the band around its 10-year bond yield target to 50 basis points on either side of 0%, from the previous 25 basis points.

The move, the first of its kind since 2018, is seen as a response to growing pressure from rising inflation and the widening gap between Japanese and US interest rates, which has put downward pressure on the yen.

The yen initially plunged against the US dollar after the announcement, falling to a one-month low of 134.60. However, it later rebounded to trade around 133.50 as the market digested the surprise move.

The BOJ also left its short-term policy rate unchanged at -0.1% and maintained its commitment to continuing its quantitative easing program, which involves buying large amounts of Japanese government bonds.

The policy shift is a significant change for the BOJ, which has long resisted raising interest rates due to concerns about the impact it would have on the country's fragile economy.

However, with inflation continuing to rise and the yen weakening, the BOJ has been forced to reassess its ultra-loose monetary policy stance.

The market reaction to the BOJ's move is likely to be mixed. Some investors will welcome the shift as a sign that the BOJ is finally beginning to address the risks of rising inflation.

Others, however, may be concerned that the move could lead to higher interest rates and slower economic growth.

The BOJ's decision is likely to have a significant impact on global financial markets, as it could signal a shift in monetary policy by other central banks around the world.