0.1% is the new 0%

The Bank of Japan’s decision to allow JGB yields to deviate by 0.2 percentage points rather than 0.1 percentage points from its 0% target suggests that long-term bond yields will settle at a slightly higher level than before. The market has yet to test the Bank’s resolve to prevent 10-year yields from rising beyond 0.2%, but our best guess is that yields will settle around 0.1%. That wouldn’t make life much easier for banks, as corporate bond issuance would still be much cheaper than bank lending. But neither will it dampen economic activity much.