Fresh round of volatility, yield spikes could erupt if BOJ follows other global central banks – Bloomberg

While the European Central Bank is widely anticipated on Thursday to raise rates for the first time since 2011 and questions around Federal Reserve policy revolve how fast and how far officials might tighten, in Japan it’s the lift-off itself that’s in question. 

Japan’s central bank was the first globally to usher in ultra-loose monetary policy, employing tools like quantitative easing and yield-curve control, and it’s set to be among the last to abandon it.

At their meeting this week, BOJ officials are expected to keep holding rates low to stimulate the nation’s economy as consumer-price increases hold below those seen in other developed economies. 

But a plummeting yen is adding to speculation about how long Japan can hold out from the hawkish shift among central banks, injecting fresh uncertainty into global bond markets. 

If it does change course, analysts say Treasury yields could jump higher -- if only temporarily -- by signaling an official end to the easy money era globally.

At the same time, though, it could also rekindle Treasury buying by Japanese investors who have been on the sidelines as the US dollar rallied -- or even drive down long-dated yields by intensifying the risk of a global slowdown.

The prospect that the BOJ will surprise markets in the coming months by removing the 0.25% yield ceiling on 10-year bonds is being eyed by some investors as a potential buying opportunity for US and euro-zone bonds.