How Have Treasury Yields Reacted to BoJ’s Tweak?

On Friday, as markets processed the Bank of Japan’s decision to alter its ultra-loose monetary policy as well as data showing a continuing reduction in annual US inflation, global shares surged and US Treasury yields decreased.

The Bank of Japan modified its yield curve control strategy on Friday by offering to purchase 10-year Japanese government bonds above its prior 0.5% target rate while maintaining its benchmark short-term rate at -0.1% and long-term bond yields at zero.

The BoJ’s move takes the central bank closer to other significant central banks, which have been ruthlessly raising rates to combat inflation. Markets anticipated that the US Fed and the ECB would be nearing the conclusion of a rate-raising cycle when they announced interest rate increases this week.

According to data released by the Commerce Department on Friday, US inflation significantly slowed in the year that ended in June, with the personal consumption expenditures (PCE) price index rising by 3%, the smallest annual growth since March 2021.

The nearly 50-country MSCI All Country stock index saw a 0.61% increase to 704.34 points. Year to date, the index has increased by almost 17%. The yields on benchmark 10-year Treasury notes decreased to 3.979%, while yields on two-year Treasury notes decreased to 4.9077%, following two-week highs for most maturities the previous day.

BoJ’s move turned out to be much less than anticipated. The market is beginning to realise that it is essentially a small adjustment and will have little impact on the tightening of credit conditions. All three of Wall Street’s major indexes were trading higher, driven primarily by equities in the technology, communication, and consumer discretionary sectors. The S&P 500 increased, and the Dow Jones Industrial Average increased by 0.37% to 35,413.02.

Following a 17-month high on Thursday when the ECB increased interest rates to their highest level in more than 20 years and left open the potential of a pause at its next meeting, European equities fell 0.2%.


Overnight in Asia, the Nikkei of Japan (.N225) fell by 0.40% while the MSCI’s broadest index of Asia-Pacific equities outside of Japan (.MIAPJ0000PUS) closed 0.42% higher.



Right now, the market is fully aware that everything depends on how the data develops. The growth is holding up well but inflation trends are actually experiencing a considerable slowdown, as would be expected for a gentle landing.


Following the BOJ’s move, the yen experienced its most erratic trading session in months, as the dollar dropped against a basket of its key rivals. At 140.88 per dollar, the Japanese yen declined 1.03% against the dollar. The euro increased by 0.41% to $1.1018 while the dollar index decreased by 0.059%.

Despite a little decline, oil prices were still on course to post increases for a fifth week in a row because to investors’ confidence that strong demand and supply restraints will support prices. While US West Texas Intermediate (WTI) crude fell 0.35% to $79.81 per barrel, Brent crude fell 0.21% to $84.06 per barrel.

Gold prices rose after a sharp fall in the previous session, helped by a slight retreat in the dollar. Spot gold added 0.8% to $1,959.85 an ounce, while U.S. gold futures gained 0.75% to $1,960.30 an ounce.