Global markets were jolted overnight after Japan unexpectedly raised the cap on 10-year Japanese government bond yields, sparking a sell-off in bonds and stocks.
"The decision is being read as a sign of testing the water, for a potential withdrawal of the stimulus which has been pumped into the economy to try and prod demand and wake up prices," said Susannah Streeter, senior investment and markets analyst at"But the Bank is still staying firmly plugged into its bond purchase program, claiming this is just fine tuning, not the start of a reversal of policy.
"Fact is, there is nothing in the fundamental nature of the move or the accompanying communique that challenges our fundamental view that the BoJ will calibrate policy to relieve JPY pressures, but not turn overtly hawkish," said Vishnu Varathan, head of economics and strategy for the Asia and Oceania Treasury Department at Mizuho.
"The functioning of bond markets has deteriorated, particularly in terms of relative relationships among interest rates of bonds with different maturities and arbitrage relationships between spot and futures markets," it added.
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