What is behind the current Yen’s Strength?

The latest announcement by the Bank of Japan (BOJ) to modify its so-called Yield Curve Control framework immediately created a state of chaos in the currency markets.

The announcement by the BoJ at one of the most illiquid times of the day. It also occurred during one of the most illiquid weeks of the year.

The BOJ will be the buyer of this debt. New data shows that the share of Japanese government bonds held by the BOJ has grown to where it now tops 50% on a market value basis.

Despite saying the BOJ would increase bond purchases to Y9 trillion from Y7.3 trillion per month, the Japanese yen strengthened against the dollar. A neatly aligned Japanese wad of 10,000 yen bills

New data shows that the share of Japanese government bonds held by the Bank of Japan has grown to where it now tops 50% on a market value basis. Into this mix, we should factor in the notion that with a wider/higher band for the 10Y yield, in theory, the BOJ will have to buy fewer bonds to keep the spread within their limit. Many of us are struggling to interpret the logic behind the latest move that allows long rates to rise from 25bps (the prior YCC limit) to 50bps.

The point is, it doesn’t matter all that much. You could argue the BOJ is both tightening and loosening at the same time. One explanation is that while causing speculation and chaos in the markets it is, or will prove to be, a big nothingburger. It is difficult to embrace the idea this will help the struggling Japanese economy which has already been hit because of its ties to China, where growth has slowed, and the high cost of energy.