Until now, the Bank of Japan (BOJ) has been an outlier among central banks, most of which have rapidly tightened policy. The BOJ widened its Yield Curve Control (YCC) range to allow borrowing costs to rise above the previous limit, surprising expectations of change at its policy meeting.
Why is the Yen so important to global markets? The Yen is the largest funding currency in the world and Japanese investors are the biggest non-US holders of the US treasuries and foreign stocks. A stronger Yen and higher Japanese Government Bond (JGB) rates may bring back money to Japan from the rest of the world as investors unwind trades. This could result in selling of assets in non-Japanese markets, causing stocks to sell-off, global bond yields to rise and non-Yen currencies to fall.
Best,
Himalay Bhatia
