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Will 10-year JGB yield hit resistance amid tug-of-war between supply/demand improvements and factors lifting yields?
Long-term and super-long-term JGB yield scenario for August 12-15
We expect the 10-year JGB yield to tread water this week. The decline in the 10-year UST and JGB yields that followed the surprisingly weak US payroll report on August 1 (US time) appears to have run its course. With respect to the differences of opinion on the US-Japan tariff agreement, it was confirmed that Economic Revitalization Minister Ryosei Akazawa, on his ninth visit to the US, was told by Trump administration officials that measures would be taken to revise the presidential executive order in a timely manner. It was also indicated that an order would be issued to reduce the automobile tariff to 15%, which would be a positive for the Japanese economy and stock market and should help push the 10-yearJGB yield higher. As discussed below, the Summary of Opinions for the BoJ's July Monetary Policy Meeting, published on the morning of August 8, contained views suggesting that Japanese inflation may be growing stickier and that a resumption of rate hikes within the year might be possible under the right conditions. This was more hawkish than the tone of Governor Kazuo Ueda’s press conference on July31. Market expectations of a 2025 rate hike, which had faded at one point, are likely to rise again.
On the other hand, last week’s two (10- and 30-year) JGB auctions passed without incident, easing supply/demand concerns. Investors who had refrained from buying during the Apr–Jun quarter are now stepping in to buy on dips when yields rise, and pension funds have also rebalanced into JGBs following the stock market rally. With the supply/demand situation for new issues improving, we think the 10-yearJGB yield will struggle to rise further even if there are developments suggestive of higher rates.
