BOJ adopts flexible Yield Curve Control

Bank of Japan introduces greater flexibility in yield curve control policy, while tech giants Intel and Ford showcase contrasting performances in latest earnings reports.

By Ahmed Azzam | @3zzamous | 28 July 2023

Market open
  • BOJ kept its key short-term interest rate unchanged

  • BOJ adopts flexible approach to Yield Curve Control

  • Ford scales back EV plans amid price war concerns

  • T-Mobile surpasses estimates, raises subscriber outlook

  • Roku's revenue exceeds expectations, L'Oreal resilient with Europe sales rise

Japanese shares experienced further losses following the Bank of Japan's decision, while the yield on 10-year Japanese government bonds surged, and the yen strengthened. Conversely, Chinese and Hong Kong markets rose, along with US contracts, while European futures faced a decline. Both Treasuries and Brent saw a dip in their performance.

Yield Curve Control gets a makeover: BOJ's bold move

During its July meeting, the Bank of Japan (BoJ) unanimously voted to keep its key short-term interest rate unchanged at -0.1% and maintain the yield on 10-year bond yields at around 0%. However, the central bank decided to enhance the flexibility of its yield curve control policy in an effort to bolster the sustainability of its stimulus measures. Notably, the BoJ clarified that the 0.5% ceiling on yield movements would now serve as a reference point rather than a rigid limit.

In its quarterly outlook report, the BoJ expressed optimism about the economy's prospects, expecting a moderate recovery supported by pent-up demand. Concerning inflation, the year-on-year rate of Consumer Price Index (CPI) was projected to decelerate due to diminishing effects of past import price increases. However, the figures are anticipated to accelerate once again as the output gap improves, along with rising inflation expectations and wage growth. The bank emphasized its commitment to expanding the monetary base until inflation surpasses 2% and remains stable above the target, with a willingness to implement additional easing measures if necessary.

This move by the BOJ to loosen its grip on bond yields is particularly significant because it was not prompted by external market pressures. Instead, it signifies the bank's confidence in the end of Japan's deflationary era. Consequently, many investors might interpret this as the conclusion of yield curve control.

Ford hits the brakes on EV plans amidst price war concerns

Postmarket, Intel witnessed an impressive 8% surge in its share price after the chipmaker declared an end to the PC slump and confidently stated that the second half of the year would showcase its long-awaited comeback. This sentiment was reinforced by a surprise profit in the second quarter.

On the other hand, Ford experienced a dip in its share value after announcing a scaling back of its plans to increase electric vehicle (EV) production. The company cited the ongoing price war as the reason for this decision.

T-Mobile shines, Roku's revenue surpasses expectations, and L'Oreal's resilience

In the realm of earnings reports, T-Mobile outperformed estimates for profit and mobile phone customer gains, leading the company to raise its subscriber outlook for the year. Meanwhile, Roku's revenue surpassed expectations, and L'Oreal experienced rising sales, with Europe compensating for a sluggish recovery in other regions.