Futuo Foreign Exchange: Japanese media reported that the Bank of Japan will discuss further "loosening" of YCC on Friday

The Nikkei coverage, seen as a spokesperson for the Bank of Japan, said the Bank of Japan will discuss revising the YCC today, investors panicked, the yen rose sharply, and the Dow ended its longest streak since 1987.

Japanese media reported that the Bank of Japan plans to discuss adjusting its yield curve control policy (YCC) at its policy meeting today (Friday), after which the yen rallied against all major currencies. The yen rose as much as 2% against the euro, its biggest gain since March this year, and rose as much as 1% against the dollar. Japanese bond futures tumbled, their biggest decline since March.

The Nikkei Shimbun (seen as the spokesperson for the Bank of Japan) reported that,The BoJ will consider keeping long-term interest rates "somewhat" above the current 0.5 per cent ceiling.Speculation in recent weeks that the Bank of Japan will eventually end its caps on government bond yields after revising them late last year could strengthen the yen, which traders have stepped up their defences against.

Shaun Osborne, chief foreign exchange strategist at Scotiabank, said that while previous speculation about a change in policy by the Bank of Japan had been misplaced,The report only suggests that the BoJ will "discuss" adjusting the YCC.But rising inflation, rising wages and the Bank of Japan's massive bond purchases suggest that the time for some kind of adjustment is coming.

When Japanese policymakers abruptly announced in December that they would allow a ceiling on Japanese 10-year bond yields to rise to about 0.5 per cent, double the previous ceiling of 0.25 per cent, it sent shockwaves through the financial marekt. As Japanese bond yields rose sharply and the yen rose sharply, everything from US stocks to the Australian dollar and gold was affected. Japanese investors are the largest foreign holders of US Treasuries, holding everything from Brazilian bonds to European power stations to a large number of risky loans within the US. Some market participants worry that,Higher yields in Japan may tempt them to abandon these overseas investments。

A leadership change at the BoJ earlier this year raised expectations for an end to a decade of ultra-low interest rates that sent money overseas and cost domestic savers. But investors have seen little progress since then.

Win Thin, global head of foreign exchange strategy at Brown Brothers Harriman & Co., said that in terms of price response,The impact of adjusting or terminating YCC is likely to spill over and push up other global yieldsAny shift could be transformative for the yen. Japan's ultra-loose monetary policy has weighed on the yen as other central banks have aggressively raised interest rates to fight inflationyen against dollarThe exchange rate fell by about 6%.

Even a modest increase in the yield ceiling could support the yen."If they end up raising the yield cap by 25 basis points, then USD/JPY will be close to the 135-136 zone", said Bipan Rai, head of global FX strategy at CIBC. "Abandoning YCC altogether will move the exchange rate closer to 120 over time", he said.

FXTIt is worth noting that the Nikkei report did not mention anything new. Just last week, Bloomberg also reported the exact same content, when it warned that the YCC discussions are coming, and the Bank of Japan may end up doing nothing.

But the latest report from the Nikkei still spooked the market.USD/JPYFirst, it broke through the key level of 141, and then 140.

Fears that the Bank of Japan will trigger another round of JGB liquidation have sent both Japanese and US government bonds plunging.The yield on the 10-year Treasury bond has soared above 4%Japan is the largest foreign holder of US Treasuries, so selling Japanese Treasuries also means less demand for US Treasuries

With everyone looking at the 4 per cent yield on 10-year Treasuries as a catalyst to sell long-term assets, investors immediately panicked. While US economic data such as GDP boosted confidence in a soft landing, US stocks opened higher and turned lower. The Nasdaq S & P fell twice in a row.The Dow ended its longest winning streak since 1987.