What Does the Yield Curve Control Policy Do?*

Shigenori Shiratsuka ()

No 2024-002, Keio-IES Discussion Paper Series from Institute for Economics Studies, 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.

Keywords: Unconventional Monetary Policy; Yield Curve Control; Nelson-Siegel Model; OIS-JGB Spread (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 G12 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2024-02-05
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://ies.keio.ac.jp/upload/DP2024-002_EN.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:keo:dpaper:2024-002

Access Statistics for this paper

More papers in Keio-IES Discussion Paper Series from Institute for Economics Studies, Keio University Contact information at EDIRC.
Bibliographic data for series maintained by Institute for Economics Studies, Keio University ().