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What Does the Yield Curve Control Policy Do?

Author

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  • Shigenori SHIRATSUKA

    (Faculty of Economics, Keio University)

Abstract

The current monetary policy framework of the Bank of Japan (BOJ) is the Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC). The YCC framework targets two interest rates with different maturity: the overnight policy interest rate at ?0.1 percent and the longer-term 10-year Japanese Government Bond (JGB) yields at zero percent. It appears to work effectively in stabilizing interest rates from short- to long-term at low levels. This paper addresses the question of what the BOJ�fs YCC policy does through the lens of the yield curve dynamics in the JGB market and the overnight index swap (OIS) market, with due consideration of practical details of the BOJ�fs JGB market operations. Empirical evidence shows two points. First, the BOJ�fs JGB market interventions amplify the fluctuations of the overall yield curves, in contrast to its policy purpose of fostering the smooth formation of a mild upwardsloping shape of the JGB yield curve. Second, the BOJ�fs outright JGB purchases in highstress times are seemingly aggressive but actually reactive to counter the market pressure on the YCC cap. These findings indicate that the YCC policy is carried out to sustain the YCC policy framework without producing effective easing effects but with significant side effects.

Suggested Citation

  • Shigenori SHIRATSUKA, 2024. "What Does the Yield Curve Control Policy Do?," Keio-IES Discussion Paper Series 2024-002, Institute for Economics Studies, Keio University.
  • Handle: RePEc:keo:dpaper:2024-002
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    File URL: https://ies.keio.ac.jp/upload/DP2024-002_EN.pdf
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    References listed on IDEAS

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    1. Michael A. S. Joyce & Ana Lasaosa & Ibrahim Stevens & Matthew Tong, 2011. "The Financial Market Impact of Quantitative Easing in the United Kingdom," International Journal of Central Banking, International Journal of Central Banking, vol. 7(3), pages 113-161, September.
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    3. Ichiro Fukunaga & Naoya Kato & Junko Koeda, 2015. "Maturity Structure and Supply Factors in Japanese Government Bond Markets," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 33, pages 45-96, November.
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    Cited by:

    1. NAKAJIMA, Jouchi, 2025. "Impact of US Monetary Policy Spillovers and Yield Curve Control Policy," Discussion Paper Series 760, Institute of Economic Research, Hitotsubashi University.

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    More about this item

    Keywords

    Unconventional Monetary Policy; Yield Curve Control; Nelson-Siegel Model; OIS-JGB Spread;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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