Investors were readying for a Bank of Japan decision Wednesday that could potentially send tremors across global markets, especially if it backs away from its yield- curve-control policy.
While economists are near unanimous in expecting the BOJ will maintain its policy and so-called YCC, their conviction has been waning since the central bank’s surprise move in December to raise its yield cap.
Some strategists have warned that a shock move higher in Japanese yields could turbocharge a yen rebound and trigger a selloff in global bonds as a wave of money flowed back toward Japan out of foreign holdings like Treasuries.
Japan’s bond market has been battling against the yield band ever since it was implemented in 2016, with the challenge intensifying in recent days.
The yen has been rallying since October, reaching the strongest since May on Friday, on bets that an end to YCC will narrow Japan’s yield differential with other major economies.
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