BOJ creates a new world for bonds.. sort of

The Bank of Japan has adjusted its Yield Curve Controls (YCC) policy. The YCC used to be a 1% cap that was applied strictly. Now 1% is a reference point without a cap which means that rates can move higher as determined by the market albeit with the possibility of BOJ intervention to control the extreme. 

Of course, the BOJ now owns over 50% of Japanese bonds outstanding so it is the 800-pound gorilla in the JGB market. YCC has been in place since September 2016 and can be considered the last of the monetary easing policies of the major central banks. The BOJ is inching to some sort of policy normalization, but we are not there yet. The reaction was a sell-off in yen because the market still views this as underwhelming. The impact on global bonds markets will be felt albeit not immediately. The gap between Japan and the rest of world rates will close, yet rising rates will have balance sheet impact for the large yen holders.