Yield Curve Control

Abstract

This is one of the first studies to analyze the Bank of Japan's (BOJ) yield curve control since 2016. The BOJ set a target range for 10-year Japanese government bond (JGB) yields and introduced distinct policy instruments. A fixed-price (i.e., unlimited-amount) purchase operation for the 10-year JGBs effectively reduces yields to the target range, although this effect may not immediately extend to the interest swap rate. The BOJ has also made regular fixed-amount purchase operations endogenous to yields and adjusted the growth rate of its balance sheet. These instruments, together with the enhanced forward guidance, have made investors' expectations convergent, and yields have become stationary and less volatile.

Keywords: large-scale asset purchases (LSAP), quantitative easing (QE), central banking, JGB, bond-price support, high-frequency data, swap spread

JEL Classification: E43, E52, E58, G12