Yield Curve Control

25 Pages Posted: 17 Jun 2019 Last revised: 5 Feb 2021

See all articles by Takahiro Hattori

Takahiro Hattori

University of Tokyo - Graduate School of Public Policy

Jiro Yoshida

Pennsylvania State University - Smeal College of Business; The University of Tokyo - Graduate School of Economics

Date Written: January 18, 2021

Abstract

This is one of the first studies that analyze the Bank of Japan's (BOJ) innovation in yield curve control since 2016. BOJ imposes yield caps by making its bond purchases endogenous to market yields through both fixed-amount and fixed-price (i.e., unlimited-amount) operations. Investors' JGB yield expectations converge across the entire yield curve under YCC, although 10-year LIBOR swap rates are not immediately affected by fixed-price JGB operations. Both long and short-term JGB yields become stationary and less volatile when the yield caps are binding, but they become non-stationary and volatile when negative market yields make the yield caps slack.

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

Suggested Citation

Hattori, Takahiro and Yoshida, Jiro, Yield Curve Control (January 18, 2021). Available at SSRN: https://ssrn.com/abstract=3396251 or http://dx.doi.org/10.2139/ssrn.3396251

Takahiro Hattori

University of Tokyo - Graduate School of Public Policy ( email )

Tokyo
Japan

Jiro Yoshida (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

368 Business Building
Smeal College of Business
University Park, PA 16802
United States
814-865-0392 (Phone)
814-865-6284 (Fax)

HOME PAGE: http://www.personal.psu.edu/juy18

The University of Tokyo - Graduate School of Economics ( email )

7-3-1 Hongo
Bunkyo-ku, Tokyo 113-0033
Japan
813-5841-5653 (Phone)
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