We expect any rise in bond yields to be gradual and don’t believe it will create major economic or market dislocation. But there are risks that the Bank of Japan loses control over longer-term yields. A rapid surge in bond yields would threaten the solvency of insurance firms, pension funds and banks and could result in fire sales of JGBs. If this were to happen, the BoJ would probably conduct emergency asset purchases and might even have to provide funds directly to non-banks.
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