Japan Economic & Financial Weekly

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Speculation of additional post-NIRP rate hikes

The 10-year JGB yield continues to trade with an upward bias this week. The second preliminary estimates of real GDP growth in Oct-Dec 2023 are revised higher on March 11, and the MoF’s Business Outlook Survey for the Jan-Mar quarter (Mar 12) comes in fairly strong. Large corporations’ responses to unions’ wage hike demands (Mar 13) and the Rengo trade union confederation’s first tabulation of those results (Mar 15) reveal that increases in base pay have exceeded last year’s gains. This leads to further speculation that the BoJ Policy Board will decide to wind down NIRP when it meets early next week on March 18-19. However, if the February US payrolls report (Mar 8) and the February CPI (Mar12) and PPI (Mar 14) prints point to a steady cooling of US inflationary pressures, the 10-year UST yield falls as the market prices in an early start to Fed rate cuts, which puts downward pressure on the 10-year JGB yield and leaves it reluctant to rise. The 30-year JGB yield trades at a level that keeps the 10s30s JGB spread at around 104bp.