Definition
Bank of Japan (BoJ)
The Bank of Japan is Japan's central bank, long known for ultra-loose policy including near-zero rates and yield curve control to fight decades of deflation.
The BoJ kept rates at or below zero for years and pioneered yield curve control, capping long-term bond yields to stimulate the economy. This made the yen the world's premier funding currency for carry trades.
When the BoJ shifts toward tightening, the yen can surge and global carry trades unwind, sending volatility worldwide, including spillovers to Indian equities. JPYINR futures on the NSE let Indian firms hedge yen exposure tied to Japanese imports and debt.
Related terms
- Carry TradeA carry trade borrows in a low-yielding currency and invests in a higher-yielding one, profiting from the interest rate differential as long as the exchange rate stays stable.
- Yen Carry Trade UnwindA yen carry trade unwind is the rapid reversal of positions funded by cheap Japanese yen borrowing, which can spark global selloffs as investors buy back yen and dump risk assets.
- Yield Curve ControlYield curve control is a policy where a central bank targets a specific level for longer-term bond yields, buying unlimited bonds as needed to hold the cap.
- Negative Interest Rate PolicyA negative interest rate policy charges banks for holding excess reserves at the central bank, aiming to push them to lend rather than hoard cash during weak growth or deflation.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.