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Impact of Bessent's comment that BoJ is "behind the curve"
Long-term and super-long-term JGB yield scenario for August 18-22
We anticipate rangebound trading for the 10-year JGB yield this week. Last week the JGB curve bear flattened and the 10-year yield reversed higher on comments by US Treasury Secretary Scott Bessent suggesting that the Bank of Japan should raise rates. However, the biggest reason why the Bank has paused its rate hikes is that it wants to determine the impact of US tariffs, which means it cannot restart the tightening process simply because the US Treasury secretary wants it to. There are no Monetary Policy Meetings scheduled this month, nor are there any opportunities for Policy Board members to speak publicly until August 28, when Junko Nakagawa will attend a meeting of business leaders in Yamaguchi prefecture. Although there is lingering speculation about a resumption of BoJ rate hikes, we think Mr. Bessent’s comments will have a limited impact.
The recovery in the Ishiba cabinet’s approval ratings should also indirectly help to keep super-long JGB yields in check. Recent polls by NHK and Jiji Press revealed higher ratings than in the surveys conducted just before the Upper House election, and respondents who felt Prime Minister Shigeru Ishiba should stay on (or "should not resign") exceeded those who did not want him to continue (or said he "should resign"). Notably, nearly 70% of LDP supporters wanted him to remain in office(69% in the NHK poll and 65.9% in the Jiji poll). The LDP plans to compile a review of the Upper House election by the end of August and confirm the views of lawmakers and prefectural federations on whether to hold an early party leadership election. But if other opinion polls later this month also confirm a recovery in the cabinet's approval ratings and significant support for Ishiba, the LDP may conclude that there is no need to hold an election immediately. Although it is unclear whether that would help stabilize the government, we think avoiding further near-term political turmoil could help keep the fiscal risk premium from widening
