Bank of Japan caps the 10-year bond yield at around zero under a policy dubbed yield curve control (YCC) and currently allows the benchmark yield to move 40 basis points around the target. The markets had been rife with speculation the Bank of Japan could widen that band and allow yields to move higher. The yield curve stably low as the economy is still suffering from the Covid-19 pandemic. briefly sent yields on 10-year Japanese government bonds to a nearly three-week low of 0.07%, before recovering to 0.09%. Expectations of a strong post-pandemic recovery have pushed up global yields including those for Japan, where the 10-year yield has briefly crept near the Bank of Japan’s implicit 0.2% ceiling.
Roll-out of vaccines is encouraging but there’s still very high uncertainty over the pandemic and its impact on the economy. Climate change as one of the key themes in guiding the country’s monetary policy, but didn’t touch on the idea of the central bank buying green bonds. Many issues that needed to be cleared for the Bank of Japan to target green bonds, such as how they would clash with the bank’s principle of buying assets in a manner neutral to markets. Climate change is among the crucial factors affecting the economy and financial system.