(Bloomberg) — Japan’s 10-year sovereign bond yield hit the key psychological level of 1% for the first time since the Bank of Japan ramped up unprecedented stimulus in 2013.
Most Read by Bloomberg
The focus now turns to how soon super-easy monetary policy will return and how much further yields can rise. Yields on 20- and 30-year bonds have hit near-decade highs, with inflation hovering above the central bank’s 2% target for two years, and analysts see them likely to rise further.
“If rate expectations rise, Japanese government bond yields along the curve, especially the 10-year, will rise more,” said Shoki Omori, chief strategist at Mizuho Securities Co. The 10-year yield could go as high as 1.2% in the coming weeks, he said.
The benchmark yield rose two basis points on Wednesday to the highest level since May 2013. This is significant for the market because it was previously the benchmark for the BOJ’s yield curve control policy, which was repealed in March, at the same time that policymakers tuned negative rates.
Swap markets are pricing in about a 60% chance of another rate hike by the end of July, compared with 14% at the time of the BOJ’s historic policy decision in March.
Goldman Sachs Group Inc. Strategists have forecast Japan’s 10-year sovereign yield to rise to 2% by the end of 2026, with expectations that the central bank will deliver a “prolonged” tightening cycle.
As speculation swirls that the BOJ may raise rates again to prevent the yen from falling further, the Japanese currency has remained weak even as the country’s bond yields rise.
The yield gap between the U.S. and Japan remains wide, especially for the shorter notes, which are used in transactions to borrow cheaply from a country to invest in higher-yielding assets. in another, according to Shusuke Yamada, Japan’s head of currency and rates strategy. at BofA Securities Japan.
The yen won’t strengthen just because the yield spread has narrowed a bit and a drop in market volatility has made trades even more attractive to investors, he said.
BOJ’s view
The central bank’s view on the inflation outlook is under intense focus, with Governor Kazuo Ueda saying earlier this month that the BOJ could raise rates if price trends pick up as expected.
It could raise rates at the next policy meeting, while quantitative easing to offload some of the accumulated assets will probably be on the table, Tom Kenny, senior international economist at Australia & New Zealand Banking Group Ltd., wrote in a note. Recent remarks by senior BOJ officials suggest there is “little tolerance” for high inflation risk, Kenny wrote.
The BOJ’s next policy meeting is on June 13-14.
Japan’s bond yields have also faced mounting pressure on speculation that the central bank will reduce the amount of debt it buys in regular operations, having done so on May 13. She did not repeat this in a subsequent operation. The next operation is scheduled for Thursday.
“There is some concern that yields will continue to rise above the 1% line, following the tapering of bond purchases by the BOJ in May 13 operations,” said Keiko Onogi, senior JGB strategist at Daiwa Securities Co.
–With the help of Daisuke Sakai.
(Adds strategist comments. An earlier version of this story corrected the size and scope of the move to 1%).
Most Read by Bloomberg Businessweek
©2024 Bloomberg LP
#Japan #yields #room #rise #hitting #BOJ #bets
Image Source : finance.yahoo.com