Yield curve control

Yield curve control (YCC) is a monetary policy tool that central banks use to influence the shape of the yield curve, which is a graph that plots the yields of bonds with different maturities. The yield curve is typically upward sloping, meaning that long-term bond yields are higher than short-term bond yields.

YCC is a way for central banks to target specific yield levels on government bonds. It involves the central bank buying or selling government bonds to control the interest rates on those bonds. By buying longer-term bonds, the central bank can push down their yields, and by selling them, it can push them up. By controlling the yield on the long end of the curve, the central bank aims to influence the entire yield curve.

The main objective of YCC is to guide the economy towards the central bank's inflation target. By controlling the long-term interest rates, the central bank can influence the borrowing costs for businesses and households, which can affect spending and investment decisions, and ultimately, the inflation rate.

The Bank of Japan has implemented YCC since 2016 as one of its monetary policy tool, in addition to its Quantitative and Qualitative Monetary Easing (QQE) policy. It aims to achieve the 2% inflation target by controlling the yield on 10-year Japanese Government Bonds (JGBs) at various levels.