The yen climbed to its strongest level against the dollar since mid-August this year. This is due to the surprising intervention of the Bank of Japan, which decided to change its policy of influencing the yield curve. This effectively allowed long-term interest rates to rise.
Increasing the tolerance band
The Bank of Japan now allows the yield on 10-year government bonds to deviate by half a percentage point on each side from the target level. Until now, this tolerance band has been set at plus or minus a quarter percentage point.
The Japanese yen reacted to the surprise by strengthening sharply against the US dollar, by 3.5 percent to 132.35 yen per dollar. The yen is thus the strongest against the US currency since mid-August this year.
Tightening monetary policy
Experts say the unexpected move by the Bank of Japan could roil global financial markets, as the Bank of Japan’s previous commitment to hold the 10-year bond yield at zero interest has served as an anchor to keep borrowing costs low around the world. Bank of Japan chief Haruhiko Kuroda, however, denied that the central bank would tighten monetary policy by widening the tolerance band
