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JGB yield and yield curve scenarios for September and 2H FY25-FY27
Long-term and super-long-term JGB yield scenario for September
The 10-year JGB yield works its way higher in September from an August range of1.465% - 1.630% (as of August 28). Speculation of a rate cut at the Fed’s September FOMC meeting and an anticipated reduction in the Ministry of Finance's issuance of super-long JGBs1are likely to exert downward pressure on bond yields. Meanwhile, expectations of an early BoJ rate hike and domestic political uncertainty could push yields higher. If lingering inflation concerns keep the10-year UST yield in elevated territory even after the Fed starts cutting, or if French political turmoil sends long-term European bond yields higher, the long- and super-long-term sectors of the JGB curve could come under steepening pressure. However, emerging expectations of improved supply-demand for super-long JGBs are likely to keep such pressure largely in check. Dip-buying with an eye on the end of the first fiscal half (end-September) is also anticipated.
The consensus is that the BoJ will leave policy on hold at the September 18-19Monetary Policy Meeting. Attention will focus on Governor Kazuo Ueda’s press conference after the meeting. Key points to watch include the Bank’s assessment of the impact and uncertainty of US tariffs and whether there are any indications by Mr. Ueda regarding the timing of the next rate hike decision. A statement by the governor that the September Tankan survey (to be released on October 1) "will probably provide a broad indication of the tariff impacts" might fuel speculation of a rate hike at the October 29–30 meeting and could also lift the 10-year JGB yield due to expectations of a higher terminal rate. Conversely, if Mr. Ueda says that the impact of tariffs has yet to manifest itself and it is unclear when the Bank will be able to carry out a proper assessment, expectations for a rate hike by the end of the calendar or fiscal year would probably remain unchanged or diminish slightly.