The Bank of Japan shocks investors

In recent months anticipation had grown that in 2023 the Bank of Japan (boj) would at last tighten monetary policy after years of no-holds-barred stimulus. Almost nobody expected it to happen in 2022. But on December 20th the bank lifted its cap on ten-year government-bond yields from 0.25% to 0.5%. The Christmas surprise caused the yen to surge—and set off speculation about what might come next.

Since 2016 the boj has intervened in bond markets to keep the ten-year bond yield at around 0%, a policy known as “yield-curve control”. Technically, the bank permitted fluctuations of a quarter of a percentage point around the 0% goal. But the upper limit of 0.25% is what mattered, especially this year, as upward pressure on yields built around the globe. Now the boj will allow moves of half a percentage point around zero. After the announcement, the ten-year bond yield surged from 0.25% to 0.4%, its biggest daily shift since 2003.