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Yield curve control?

Has Kuroda-san got the mojo that others don’t? Well, at least last week it seemed so. Unlike his central banking comrade Jay Powell, the BoJ governor put the foot down on Friday and declared that the prescribed range within which the 10-year JGB yield had previously oscillated was appropriate and not subject to change. He reacted to the global phenomenon of plunging bond prices and rising long rates that inevitably also affected the Japanese government bond market.

As the 10-year Treasury yield spectacularly blew out to above 1.60% week before last, the corresponding JGB yield equally broke out of its range of 0-5bp, anchored and adhered to since last year’s March crash, and reached a 5-year high of 18bp. While Powell was busy assuring markets that the Fed was not concerned about inflation, publicly and with the obvious intent to have markets comply with his words of wisdom and prevent further increases in yield, it barely worked.
Kuroda, on the other hand, would have none of it. Last Friday, he truly meant business when he made his statement. The market obliged immediately and felt compelled to be forced into submission. 10-year JGB yields collapsed back to 7bp intra-day before closing out the week a smidge below the 10bp mark, widely perceived to be the upper end of the yield range. The man put the foot down, and it worked instantly. Kuroda sure showed Powell how to do this, or everyone thought.
Observing the JGB movements so far this week, however, we are presented with a picture that rather reminds us of Powell and his Treasury market. Gone is the market’s obedience, the selling has reconvened, and traders have been pushing the boundaries again. For Japan, this appears even worse, as unlike the Fed the BoJ actually conducts a policy of yield curve control. Powell can claim that this isn’t yet part of his repertoire, but Kuroda must be embarrassed that the market is revolting against his law of the land.
What does this mean? Have we arrived at a stage when yield curve control is no longer effective and the price to enforce it too big? Monetary policymakers like Kuroda, Powell, and Lagarde will have to make a call… print and spend trillions more on their recoveries and at the same time get a handle on their respective rate curve, or incur the cost of potentially deteriorating economies before the recovery has even set in, as bonds get into the swing of it when left alone.
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