BoJ’s Yield Curve Control under threat

We expect Japan’s economic output to return to its pre-virus path by the end of the year. With the recovery from the pandemic complete, we expect GDP growth to slow from 2.7% this year to just 1.0% in 2024. The Bank of Japan won’t respond to inflation rising above its 2% target by raising short-term interest rates as soaring energy prices rather than stronger underlying price pressures are the main driver. However, there’s a growing risk that it will give up control over longer-term interest rates if it is forced to keep buying large amounts of bonds to defend its 10-year yield target.