The Bank of Japan is done capping bond yields

• That suggests the bank will intervene to keep JGB yields from rising much above 1% — buying bonds as necessary — but will have some flexibility.
• It avoids a situation in which the bank must deploy bottomless resources to defend an arbitrary bright line.

What they're saying: "We decided that it's appropriate to increase flexibility so that long-term yields can be smoothly shaped, according to different future scenarios," said governor Kazuo Ueda, according to Bloomberg's translation.

• Ueda attributed the move in significant part to the run-up in U.S. Treasury yields that has made the BOJ's efforts to defend its cap more costly.

The context: Under the BOJ's policy of "yield curve control," in place since 2016, the central bank has put a lid on interest rates by pledging to buy bonds in whatever quantities it takes to achieve its desired long-term yield.

• This is the latest in a series of baby steps toward allowing the rates on long-term Japanese debt to float according to market forces, as is the case for Treasuries.

Yes, but: The bank appears reluctant to fully abandon the tool in light of its long battle with deflation and is aimed at more actively managing longer-term Japanese interest rates than its European and U.S. counterparts.

The bottom line: Yield curve control is dead. Long live yield curve control.