QuickTake Q&A: Why Japan’s Central Bank Targeted the Yield Curve

The Bank of Japan is seeking to control the yield curve in the latest iteration of its unprecedented stimulus efforts. Governor Haruhiko Kuroda started on his quest toward a 2 percent inflation target by announcing massive asset purchases in 2013. He expanded those in 2014, before introducing negative interest rates in January of this year. Japan is doing everything it can to pull out of deflation -- inflation below 0 percent, with prices dropping across a wide range of goods.

It’s the relationship between yields across different maturities on fixed-rate debt from the same issuer -- in this case, government bonds. In a healthy economy, shorter-term securities will usually have lower yields, reflecting their lower risk to investors.