Why Tweaks to Japan Yield Curve Controls Rock Markets

Since 2016, the Bank of Japan has suppressed long-term borrowing costs to try to revive a stagnating economy. Growth has failed to materialize and the policy, known as yield curve control, has brought some unwelcome and unintended consequences. So the BOJ has begun to row back by loosening its grip on government bond yields. It’s a delicate exercise for BOJ Governor Kazuo Ueda, who needs to wean Japan’s companies, not to mention the government, off ultra-cheap money without causing a debt shock that tips the economy into a recession.

Bond yields are an expression, in annual percentage terms, of the rate of return you expect to get on a particular fixed-income security. The gap between yields on different maturity instruments is known as a yield curve. Most of the time, investors demand higher returns for locking away their money for longer periods, with the greater uncertainty that brings. So yield curves usually slope upward.