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Fixed Income Commentary

Intriguing RV graphs: Revisiting relationship between JGB yields and exchange rates

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Intriguing RV graphs: Revisiting relationship between JGB yields and exchange rates      

Key points

  • Concerns about BoJ falling behind the curve are pushing up 10yr JGB yield through a spiral of rising inflation expectations (BEI) and sustained yen depreciation.

  • A comparison of BEI's relationship with exchange rates and crude oil prices in Japan and the UK suggests Japan has already fallen into such a spiral.

  • Accelerated rate hikes by BoJ could break the spiral; for now the focus is on gauging BoJ's commitment to raising interest rates.

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