Why BOJ’s Small Tweak to Bond Yields Was a Bombshell

The Bank of Japan’s tactic of buying government bonds to cap interest rates on longer-term debt has been a pillar of its effort to suppress borrowing costs and stimulate the economy. On Dec. 20, the bank adjusted the policy, known as yield curve control, allowing long-term yields to rise more. The move blindsided investors, sent the yen soaring and stoked speculation that the country’s policymakers may be preparing to align with other major economies by allowing rates to climb further.

Bond yields are an expression, in annual percentage terms, of the rate of return you expect to get on a particular fixed-income security. And the gap between yields on different maturity instruments is known as a yield curve. Most of the time, investors demand higher returns for locking away their money for longer periods, with the greater uncertainty that brings. So yield curves usually slope upward.