The encyclopedia · Finance & Accounting · Financial decision · 2016–2024
Bank of Japan capped the 10-year yield at zero instead of fixing bond purchases
In September 2016 the BOJ made the 10-year JGB yield its operating target, so bond purchases became a tool to defend a price instead of a quantity promise.
Bank of Japan
the move
After three years of quantitative and qualitative easing, Japan's inflation was still far from the 2% target and the side effects of buying about 80 trillion yen of bonds a year were mounting. In September 2016 the Bank of Japan published a comprehensive assessment and replaced the quantity guideline with a new framework: QQE with Yield Curve Control.
Under the new framework the Bank set two operating targets — a negative policy rate of minus 0.1% and 10-year JGB yields at more or less around zero percent. Bond purchases became a means of defending that yield level, and fixed-rate purchase operations gave the Bank a tool to cap long-term rates whenever they threatened to rise.
The second component was an inflation-overshooting commitment: the Bank promised to keep expanding the monetary base until observed CPI exceeded 2% and stayed above it. Kuroda argued this converted easing from an adaptive, hope-driven policy into a forward-looking promise, and made the program more flexible and sustainable.
The design was a first: no other major central bank had run its balance-sheet policy off a yield target combined with an explicit overshoot commitment. The framework anchored the long end of the curve while letting purchase volumes fluctuate without signaling a change in policy stance.
why it works
- A yield target separates the policy stance from the mechanics of bond purchases.
- Fixed-rate purchase operations let the Bank cap rates instead of chasing quantities.
- The overshoot commitment tied exit to realized inflation, not calendar dates.
- Flexible purchase volumes removed the market's inference that less buying means tightening.
what transfers
A quantity target is blunt: the same purchase size moves yields differently in different conditions. Naming the yield you want lets the instrument flex and anchors expectations.
what came after
The 10-year yield stayed pinned near zero for years while the Bank absorbed a large share of the JGB market. The framework was later adjusted as inflation picked up, with the target band widened and the policy eventually unwound once inflation rose above the target.
references
- Speech by Governor Kuroda in Osaka: Comprehensive Assessment of the Monetary Easing and QQE with Yield Curve Control
- Market Operations in Fiscal 2016
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