Given global and domestic inflationary pressures, it doesn’t seem sustainable for the BOJ to maintain YCC for an extended period of time, but their decision to keep policy unchanged reflects their strong desire to exit in a controlled manner. It’s not surprising that the BOJ held off for now, as even widening the band was a marked change at the end of last year, after decades of ultra-loose monetary policy.

The BOJ will eventually have to give in to an end of capping the 10y benchmark at 0.5% as it just feels inconsistent with the current economic and political landscape. They will also need to keep defending YCC by buying more JGBs – the volume of these purchases feels unsustainable but the BOJ’s Governor, Haruhiko Kuroda, has said he saw no particular risk from bond buying/refused to rule out negative rates on funding operations (essentially paying banks to buy Japanese debt). There is also perhaps an element of Haruhiko Kuroda not wanting to make any further policy changes before his term comes to an end; whether the new governor will be strictly dedicated to continuing existing policies or will be more willing to adjust policy, is open to speculation.