At the July 2023 Monetary Policy Meeting, the Bank of Japan took markets by surprise (after "pre-announcing" its policy 10 hours prior during US trading hours and moving global currency, equity and bond markets) by making a significant change to its Yield Curve Control policy framework, in which it lifts the upper trading band on 10-year JGB yields from 0.50% to 1%. The central bank also made a major revision upwards on its inflation forecasts for fiscal year 2023 to 2.5%, well above its 2% target. This is the first policy change implemented under newly appointed Governor Ueda.

While the consensus debate revolves around whether or not this is the start of Bank of Japan's exit from its outlier accommodative policies, Tokyo-based Weston Nakamura believes that there is far more to the policy decision than just a "YCC tweak."

Aided by utilizing financial media outlets to move markets and clear out existing positions, the Bank of Japan is attempting to wrestle its policy away from the hands of markets, and return it back under its own control by purposely introducing elements of confusion and uncertainty - which it labels as "flexibility."

Weston gives a historic overview of how Yield Curve Control trading bands had been a market-creation in the first place, what the market implications are, and why this policy change fundamentally reshapes how the Bank of Japan and market participants interact.

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