Japan Economic & Financial Weekly

The 10-year JGB yield treads water with an upward bias this week. Early in the week there are lingering concerns about the 10-year bond offering on January 10and the 30-year offering on the 12th. The 10-year yield tests the upside if both auctions end with poor results, as expected. It also assumes an upward bias if the January 11 meeting of BoJ branch managers confirms that the "virtuous cycle of wages and prices" is spreading to regional economies, rekindling speculation of an early end to NIRP. But if the 10-year UST yield drops in response to the December US payrolls report on January 5, the 10-year Japanese bond yield also comes under pressure when traders return on Tuesday. The consensus forecast for the timing of an end to NIRP is in April, after the BoJ has ascertained the economic impact of the Noto earthquake, so any renewed speculation of an early end to NIRP is unlikely to be that strong. We therefore see limited upside for the 10-yearJGB yield. The 20-year JGB yield trades at a level that keeps the 10s20s JGB spread (Graph 6) at around 75bp.