Yield curve control assumes that the central bank determines the long-term interest rate for a specific maturity of the government bond yield curve (for example, 3, 5, or 10-year bonds) and then buys or sells as many bonds as needed to reach the target rate.
For example, at the end of 2016, the Bank of Japan (BoJ) switched from a usual quantitative easing (QE) policy to a yield curve control (YCC) policy, in which it seeks to keep the yield on 10-year Japanese government bonds (JGB) at 0% in order to stimulate the Japanese economy. Whenever JGB’s market yield deviates from its target range, the Bank of Japan buys or sells bonds to influence the yield. It is noteworthy that the use of this instrument by the Bank significantly influenced the volume and frequency of purchases; from 2016 until the start of the pandemic, the Bank of Japan bought bonds at a slower pace than under its own QE program earlier.
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