Has the BoJ Just Triggered a Global Sovereign Debt Crisis?

Global markets were jolted overnight after the Bank of Japan unexpectedly widened its target range for 10-year Japanese government bond yields, sparking a sell-off in bonds and stocks around the world.

The central bank caught markets off guard by tweaking its yield curve control (YCC) policy to allow the yield on the 10-year Japanese government bond (JGB) to move 50 basis points either side of its 0% target, up from 25 basis points previously, in a move aimed at cushioning the effects of protracted monetary stimulus measures.
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The BOJ — an outlier compared with most major central banks — also left its benchmark interest rate unchanged at -0.1% on Tuesday and vowed to significantly increase the rate of its 10-year government bond purchases, retaining its ultra-loose monetary policy stance. In contrast, other central banks around the world are continuing to hike rates and tighten monetary policy aggressively in an effort to rein in sky-high inflation.
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"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 Hargreaves Lansdown.

"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."

That sentiment was echoed by Mizuho Bank, which said in an email Tuesday that the market moves reflect a sudden flurry of bets on a hawkish policy pivot from the BOJ, but argued that the "popular bet does not mean that is the policy reality, or the intended policy perception."
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The outgoing boss of the Bank of Japan, Haruhiko Kuroda, and the incoming boss, Kazuo Ueda, sang from the same hymn as the worst inflation figures since 1981 came to light on Friday: This inflation will go away on its own, and we’re going to keep the reckless negative interest-rate and money-printing policies.

Kuroda stakes his entire tenure at the BOJ on these policies and cannot now back off, no matter what inflation does, and inflation is doing it; and Ueda cannot contradict Kuroda. He will become boss in April, and until then, he will sing from the same hymn. Then eventually, there will be a monetary policy review, which will find that these policies worked great but maybe it’s time to adjust them a little. All this will take till the second half of this year, and until then, the BOJ will fuel this inflation with all its might.

Japan’s “core” Consumer Price Index for all items less fresh food, which the BOJ uses for its 2% inflation targeting, jumped by 4.2% in January from a year ago, the worst rate since 1981, according to data from Japan’s Statistics Bureau today. ...

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