Yield Curve Control

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