- Yen Craters To 20 Year Low As BOJ Stuns Markets With Daily Fixed-Rate Operations To Defend YCC
by Tyler Durden, https://www.zerohedge.com/
It was a little over a month ago – on March 24 – when we first laid out the big dilemma facing the Bank of Japan, which on one hand was hoping to avoid a currency collapse (for obvious reasons) and prevent a crash in the yen, while on the other hand, was also hoping to keep the 10Y yield below its extremely dovish 0.25% yield curve control rate ceiling. The problem is that while the BOJ can control one or the other, it can’t control both; this is what we said then:
Japan, that paragon of MMT crackpots everywhere, suddenly finds itself trapped in a lose-lose dilemma: intervene in the bond market and spark a furious, potentially destabilizing and uncontrolled plunge in the yen which would also lead to galloping (if not worse) inflation, which could collapse what little faith remains in the BOJ, or do nothing and contain the slump in the yen while risking far higher yields which in a country where the debt is orders of magnitude greater than GDP, could also spell fiscal and monetary doom.
As a result, the market – having long gotten used to amicable interventions from the BOJ – will now surely test one of these two outcomes, and how the BOJ responds could have dramatic consequences for this original MMT test case. Should the BOJ’s reaction spark further erosion of faith in either Japan’s fiscal or monetary policies, the outcome for the world’s most indebted nation would be disastrous.
Sure enough, the market did test both outcomes, and after pushing the 10Y JGB yield to the upper bound of the YCC corridor of 0.25% and finding the BOJ willing to defend Japanese yields from further spikes, decided to focus its hammering on the yen instead, pushing it to two decade lows.