While debating over whether yield curve control (YCC) might help the US Federal Reserve (Fed) bank to meet its full employment and 2% inflation goals, Matthew Higgins and Thomas Klitgaard, both vice presidents in the New York (NY) Fed Research and Statistics Group, wrote that the YCC strategy adopted by the Bank of Japan (BOJ) helped the central bank set long-term interest rates with less need to intervene in markets.
Key quotes
“Does YCC help a central bank achieve its policy goals?”
For Japan, which adopted YCC in 2016, “the jury is still out,” since low long-term interest rates have yet to push inflation to the bank’s 2% target.
“Still, YCC has had one clear benefit… The BOJ has been able to exert fairly close control… without resorting to large-scale interventions in the JGB (Japanese government bond) market. Investors accept that the Bank can buy whatever quantity of JGBs is needed to keep yields from rising and, as a result, it has not had to buy many at all.”
Market reaction
The above comments had little to no impact on the US dollar, as broad risk-on market sentiment played a pivotal role and weighed heavily on the greenback amid hopes of additional US stimulus measures to tackle the coronavirus resurgence.
The US dollar index sits at multi-day lows of 97.00, down 0.62% as on Monday.
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