Trapped below zero – the BoJ and deflation risks

One of the key monetary features of the early stages of the COVID crisis was a precipitous decline in short interest rates and government bond yields in Q1 2020, as investors viewed the pandemic as a massive deflationary shock. However, longer dated yields fell far less, and in Japan, 20yr+ yields have actually risen since Q1 2020, both in absolute, and relative terms, as Chart 1 shows.

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