Japan Economic & Financial Weekly

Impact of speculation surrounding early rate hikes and cuts to BoJ bond purchases

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Impact of speculation surrounding early rate hikes and cuts to BoJ bond purchases

JGB yield and yield curve scenario for May 13-17

The 10-year JGB yield treads water with an upward bias this week. Concerns about a potential reduction in the central bank’s JGB purchases lead to nervous trading on May 13 and 17, when buying operations are scheduled. But even if a reduction is announced, the market has largely priced it in after recent BoJ efforts to lay the groundwork for such a scenario, and while the 10-year yield may reflexively move a little higher it soon stabilizes in response to dip-buying. Meanwhile, if the US CPI report for April (May 15) indicates a resumed slowdown in inflationary pressures and the 10-year UST yield declines on expectations of a start to Fed rate cuts by the end of 2024, the 10-year JGB yield falls with it. The 30-yearJGB yield encounters upside resistance above life insurers’ target yield of 2.0%(noted in their investment plans for FY24) as buy orders outweigh sell orders

Forecast range:
10-year JGB yield:  0.880%–0.930%
30-year JGB yield: 1.950%–2.000%

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