Today, the Bank of Japan moved to revise the YCC at its policy meeting, as reported in a leak by the Nikkei at 2am. However, the initial wording was “it is appropriate to enhance the sustainability of monetary easing” and the range of around 0.5% remained unchanged, which confused the market and the initial market reaction was a rise in the dollar/yen on the foreign exchange market and a rally on the stock market.

However, BOJ Governor Ueda said at the press conference that he would leave long-term interest rate changes more to the market and clearly communicated his intention to change the YCC in a direction more in line with market realities.

This makes 1.0% the de facto upper limit of the new long-term interest rate, which should be interpreted as effectively widening the YCC bandwidth, so USD/JPY will be looking to the JGB rate for support in the near term.