A0403
Title: Yield curve control under attack: Where do the pressures come from?
Authors: Etsuro Shioji - Chuo University (Japan) [presenting]
Abstract: In recent years, central banks around the world have adopted various types of unconventional monetary policies. Since 2016, the Bank of Japan has implemented the yield curve control policy, and set a target range for the yields on 10-year government bonds. A potential shortcoming of such a policy is that it could invite speculative attacks from investors, especially if the bank's commitment to defend the "red line" is deemed not fully credible. A new measure is constructed of market pressures exerted on the upper and the lower bounds specified by the central bank. Like the exchange market pressure index, which is widely used in the literature of international finance, the proposed index combines information on the movement of the bond yields with the amount of market intervention made by the bank. On the other hand, the target-zone-like feature of the YCC is taken into account in the specification of the index. The determinants of this novel "Bond Market Pressure Index" are studied and the relative importance of external vs. internal factors are compared. It is found that the external factor, represented by the US long-term interest rate, plays a much more important role than the domestic factor, which is represented by the Japanese CPI.
