The Bank of Japan has kept interest rates at or below zero for years. Their bet was that the suppression of interest rates (by purchasing Japan’s net issuance, the BoJ now owns over 50%) would offer sufficient protection against both inflation and the 263% debt:GDP – exacerbated by the rapid depreciation of the yen.
Investors, including yours truly, have had their doubts. While effective at propping up equity prices [see: The Yen Carry Trade Explained], the yen’s plunge greatly amplified food and energy price increases. Inflation reached 3.6% in October. It seemed as though something would eventually have to give.
It just did.
The BoJ just announced that they would allow rates to move to as high as 0.5%, sending the 10Y soaring from 25 to 42 bps…
…and the USDJPY plunging (yen strengthening) by 3.3% – below its 200-day moving average for the first time since Feb 2021.
The BoJ is essentially betting that the small increase in rates will
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