Title: What is yield curve control?
Headings: What is yield curve control?
What is yield curve control?
Sage Belz
Former Research Analyst - Hutchins Center on Fiscal & Monetary Policy, The Brookings Institution
David Wessel
Director - The Hutchins Center on Fiscal and Monetary Policy
Senior Fellow - Economic Studies
What is yield curve control, and why does it matter?
What do we learn from the Bank of Japan’s use of yield curve control?
How would YCC affect the economy?
What would an interest rate peg look like in the United States?
What are the downsides to YCC?

Content: The Bank has been successful at maintaining a yield of zero percent on JGBs. In addition, YCC has allowed the BOJ to purchase fewer bonds in the last three years than it did under the large quantitative easing program that began in 2013. Until late 2016, the BOJ was purchasing about 100 trillion yen in JGBs each year. As a result, the BOJ’s balance sheet expanded much faster than that of other major central banks. Since the initiation of YCC, however, the BOJ has purchased government bonds at a slower pace and still kept yields on 10-year bonds at historically low levels. So far in 2020, the Bank is on track to purchase only about 6 trillion yen in government bonds and has been able to respond to the coronavirus downturn by greatly expanding its purchases of other kinds of assets, including corporate bonds and equities. The BOJ experience demonstrates that credible YCC policy can be more sustainable for central banks than a quantity-based asset purchase program. How would YCC affect the economy? Interest rate pegs theoretically should affect financial conditions and the economy in many of the same ways as traditional monetary policy: lower interest rates on Treasury securities would feed through to lower interest rates on mortgages, car loans, and corporate debt, as well as higher stock prices and a cheaper dollar.