While the move caused the yen to strengthen against the dollar and Japanese government debt yields to rise, the BOJ has laid all the groundwork for a relatively orderly end that contrasts with the reputational damage and market gyrations that accompanied the chaotic collapse of the Reserve Bank of Australia's YCC in 2021.
But Mr. Ueda's surprise move may raise questions about his communication strategy at an early stage of his five-year term. Economists also warn that bond bears and yen bulls should remain on guard. Ueda is in no rush to stop buying JGBs and will continue to massage yield moves going forward to stop them spiraling upward.
Japan's heavily indebted government will also be hoping that the cost of issuing debt doesn't spiral upward as it looks for ways to pay for its ramped-up defense and childcare spending plans.
"This is the 'de-facto' abolishment of yield curve control," UBS economist Masamichi Adachi said. While he played down the linkage toward future tightening moves, he said a lack of policy guidance did leave open the possibility of the BOJ raising its short-term interest rate.
At Friday's board meeting, the BOJ left that rate untouched at -0.1% and its long-term bond yield target at zero. The bank also acknowledged that inflation was much stronger this fiscal year than it expected as recently as April, while insisting it would slow below 2% the following year, in a justification for continuing with stimulus.
Since the YCC was introduced in September 2016 as a new way of keeping bond yields low, the framework has slowly been adjusted toward greater flexibility over the years.
Speaking after the decision, Mr. Ueda himself said he didn't expect yields to get to 1% under current circumstances in a remark that lays out the effective redundancy of the tool.
"I don't think it's appropriate for yields to go up to 1%," Mr. Ueda said. "Given that until yesterday yields were below 0.5%, and we've decided we'll flexibly conduct operations if yields go beyond 0.5%, I don't expect yields to move to 1%."
