Loading ...All this will happen… but not just yet. For now, Japan’s central bankers are dutifully defending their yield target. The central bank boosted scheduled purchases of five-to-10-year debt to 800 billion yen ($6 billion) Tuesday from an expected 500 billion yen after the benchmark yield climbed to 0.255%. It also announced an unscheduled operation to buy longer-dated debt after the 30-year yield surged to 1.28% — the highest since 2016. Japan’s central bank also bought 2.2 trillion yen worth of government notes through its fixed-rate operation on Tuesday, the biggest amount on record since the program began in 2016.
Meanwhile, since defense of YCC means continued collapse of the yen (or vice verse), the yen tumbled to a fresh 24-year low of 135.60 per dollar amid the growing policy divergence between the BOJ and the Fed.
“We do think that the BOJ will be forced to capitulate at some point,” Russel Matthews, senior portfolio manager at BlueBay, said in an interview with Bloomberg Television. And while a normal response would be for the yen to spike even as yields surge, what will be the worst possible outcome is for both the yen and JGBs to both plunge at the same time.
If and when that happens, it’s game over for Japan, MMT and fiat.