The Evolution of Monetary Policy Focal Points

With near-zero policy rates becoming the norm in many advanced economies, focus on long-term bond yields has strengthened considerably. The unconventional monetary decision by Bank of Japan (BOJ) September 2016 to explicitly target ten-year Japanese government (JGB) yield institutionalized this process—by effectively creating a new focal point. In article, we study importance such points. Empirically, also investigate how JGB benchmark maturities ranging from one thirty years affected other over time. We find that bond, indeed, became more influential 2016. However, effect was surprisingly short-lived. results suggest once financial market participants anchored their expectations BOJ target, attention merely shifted towards even longer maturities. Contrary logic transmission mechanism, short end curve been an absorber, rather than transmitter, influence during last decades.