The BoJ, under new governor Kazuo Ueda, went for nuance on Friday, but I’m afraid they might’ve engendered a bit of confusion in the process.

A Nikkei report suggesting the bank might tweak its yield-curve control corridor at the July meeting unnerved US markets late Thursday and had traders on edge in the lead up to the policy statement. Sure enough, the BoJ announced a tweak. Sort of.

The bank kept the 0.5% range, but instead of a “rigid” (their word) corridor, it’s now a “reference” region. They illustrated the difference using a gradient effect.

Yields will now be allowed to “fluctuate” within a wider reference region, which in the current environment means the BoJ will permit yields to drift above 0.5%. The hard cap is now 1%, where the BoJ will offer to purchase 10-year JGBs every day, unless it’s obvious nobody’s interested.

Between 0.5% and 1% (so, in the gradient), the BoJ will be “nimble,” which presumably means they’ll step in as they see fit. The bank said this approach will “enhanc[e] the sustainability of monetary easing.” It’s a “flexible” approach to YCC.

One problem with announcing a new, higher, hard cap on yields is that markets tend to immediately test it, which then necessitates bond-buying. That’s the opposite of enhanced sustainability. The approach announced on Friday is presumably aimed at mitigating that dynamic, but… well, as alluded to here at the outset, it could be confusing for markets.

The specter of a disorderly, RBA-style YCC “crash out” for the BoJ haunted markets in 2022, when a relentlessly strong dollar, surging commodity prices and a recalcitrant Haruhiko Kuroda put enormous pressure on the yen, eventually compelling the government to intervene on the currency’s behalf for the first time since 1998.

Kuroda rode out the storm (which reached a crescendo in September and October) only to blindside markets with a YCC tweak in December.

The bank’s updated economic outlook described downside risks to growth and upside risks to prices. Ultimately, though, the BoJ said “sustainable and stable” 2% inflation “has not yet come in sight.”As such, the bank “needs to patiently continue with monetary easing.”

Earlier Friday, Tokyo inflation excluding fresh food printed 3%, cooler than the prior month’s 3.2% pace. Stripping out energy, inflation rose 4%, the most in more than four decades.