Yield Curve ControlYCC
Yield curve control is a policy in which a central bank targets the yield on bonds of a chosen maturity and buys or sells as much as needed to hold it there. The Bank of Japan used it from 2016 to 2024.
Yield curve control is an unconventional monetary policy in which a central bank picks a bond yield and defends it. It was used by the Bank of Japan and, for a shorter period, by the Reserve Bank of Australia.
- Category
- Fundamentals and Macroeconomics
- Reading time
- 3 min
- Also called
- Yield targeting, Yield cap
- Updated
Yield curve control in plain words
In September 2016 the Bank of Japan began targeting a ten-year government bond yield of about zero.1
The Bank of Japan explains that under YCC the allowed range for long-term rates is fixed and the amount of purchases is determined endogenously in response to changes in demand.2
In other words, the bank promises a price and lets the quantity it buys adjust.
How yield curve control works
Pick a maturity
Australia's central bank targeted the three-year government bond yield.3
Announce the target
The Bank of Japan aimed for “around zero percent” on ten-year bonds.1
Stand ready to buy
Purchases adjust to demand while the yield range stays fixed.2
Use special tools
Japan introduced fixed-rate bond purchases as an extra tool.4
Monitor transmission
In Australia, the target's pass-through to other rates later weakened.3
Plan the exit
Australia's exit in late 2021 was disorderly and came with bond-market volatility.3
Worked examples
Example 1 — Defending a cap
Cap heldA hypothetical central bank caps the 10-year yield at 0.5%; market selling pushes it toward 0.6%.
| Target cap | 0.5% |
| Market pressure | 0.6% |
| Bank action | Buys bonds |
Purchases rise in response to demand while the range stays fixed, pulling the yield back.2
Example 2 — Credible target
Low costA hypothetical bank’s target is trusted, so it buys only a small amount of bonds.
| Bonds bought | Small |
Because the promise to buy as much as needed was credible, Japan ended up buying very few bonds.1
Example 3 — Disorderly exit
VolatilityA hypothetical bank drops its target suddenly and the 3-year yield jumps 0.8 pts in days.
| Yield move | +0.8 pts |
The RBA describes its own exit as disorderly and associated with bond market volatility.3
YCC vs quantitative easing
| Aspect | Yield curve control | Quantitative easing |
|---|---|---|
| Target | Price (yield) | Quantity of purchases |
| Purchase size | Varies with demand | Pre-announced |
| Flexibility | Lower | Higher |
| Exit risk | Can be abrupt | More gradual |
Where YCC matters
Bond trading
Targets anchor Treasury Bills, Notes and Bonds-style government yields.
Currency views
Capped yields can weigh on a currency when other Interest Rate levels rise.
Policy analysis
A tool of the Central Bank at low rates.
Event risk
Changes to targets can trigger Volatility.
Advantages and disadvantages
Advantages
- Can anchor yields with fewer purchases.
- Reinforces forward guidance.
- Gives clear signals to markets.
Disadvantages
- Exits can be disorderly.
- Transmission can weaken over time.
- Can distort market functioning.
- Reputational risk for the central bank.
Going deeper
Read as far as you need. Each level builds on the one before it.
Common mistakes
Assuming targets are permanent
Central banks can tweak or drop them.
Ignoring exit risk
Exits can be sudden.
Confusing YCC with QE
YCC targets a price, QE a quantity.
Watching only the target bond
Other maturities can move.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- YCC targets a bond yield.
- Purchases adjust to defend it.
- Japan used it from 2016 to 2024.
- Australia used a 3-year target in 2020–21.
- Exits carry volatility risk.
Frequently asked questions
Does the Bank of Japan still use YCC?
Is YCC the same as QE?
Why do exits matter?
Further learning
- Central Bank
Who runs YCC.
- Yield to Maturity
What is being targeted.
- Interest Rate
Policy rates.
- Duration
Bond price sensitivity.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Federal Reserve Bank of New York (Liberty Street Economics). Japan’s Experience with Yield Curve Control (opens in a new tab) Checked .
- Bank of Japan. Outlook Report Box: Effects of YCC (April 2024) (opens in a new tab) Checked .
- Reserve Bank of Australia. Review of the Yield Target (opens in a new tab) Checked .
- Bank of Japan. Working Paper 24-E-10 (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.