BOJ Raises YCC Cap to 1%, Yen Surges 2.5% in a Single Day

The Bank of Japan decided at its latest policy meeting to raise the yield curve control (YCC) cap on 10-year JGBs from 0.5% to 1.0%, characterizing it as a "reference value" rather than a "hard cap" to leave room for further flexible adjustments. This decision far exceeded previous market expectations, triggering an immediate and violent FX market reaction. USD/JPY plunged 2.5% on the day, falling from 154.80 to 150.50, a near two-month low. Japan's 10-year JGB yield quickly rose to 0.95%. Analysts expect gradual BOJ policy normalization to narrow the US-Japan rate differential, providing sustained medium-term support for the yen.