Eoin Treacy's view -
Happy new year! The BoJ has surprised us! At yesterday's tender, it offered to buy Y190bn of bonds in the 10 - 25 year maturity range, a reduction of Y10bn. It similarly reduced bonds purchased in the 25+year maturity category. Well, this was unexpected and the 10-year yield has risen to around 8bps (!!). The BOJ's target, as we know, is zero. The yen has rallied sharply over the last couple of days. It's worth recalling that at this time last year, the BOJ was purchasing Y190bn of JGBs with 10 to 25 years of maturity left and Y110bn of 25 to 40-year JGBs. Thus, while the BOJ remains extremely accommodative, any change at the margin, however small, will cause a ripple or two. BOJ's action coincided with the stock market looking quite overbought in the short term and USD/Yen finding resistance around 114. All said and done, I can't believe that the BOJ will let bond yields rise too far away from their target.
Thank you for this informative email. Japan is one of the only countries in the world right now running both accommodative monetary and fiscal stimulus. However, let’s not also forget that creating inflation is the primary goal of these operations, hopefully from outsized domestic growth, but any inflation will do to help erode Japan’s massive quantity of debt.
This section continues in the Subscriber's Area. Back to top