Japan’s central bank, the Bank of Japan, made quite a stir in the financial world this week when it announced that it is relaxing the allowed trading band for 10-year Japanese government bonds (known as JGBs) by 25 basis points. This means that, after keeping the rate capped at 0.25% for many years, it can now rise as high as 0.5%.
And that’s exactly what happened. As our featured chart of the week above shows, the yield on the 10-year JGB shot up to roughly 0.5% after the announcement. This is the highest Japan’s 10-year benchmark interest rate has been allowed to be since 2015.
While this may not seem like a particularly exciting development at first glance, it actually has some interesting implications for Japan’s economy and financial markets.
For example, it will give investors more flexibility in terms of how they trade the JGB, which could make them more attractive to investors. This also has the effect of increasing liquidity in the market, which is the primary reason officials gave for enacting the policy change.
Overall, though, this development points to a big change we’ve seen in financial markets this year. For many years, deflation and low interest rates were what countries were dealing with—and Japan was the poster child of that era. But now, inflation and higher rates have taken center stage, ushering in what might become a new era of global macroeconomics.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.