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Markets deadlocked ahead of final Fed and BoJ meeting in 2024
We see the 10-year JGB yield trading in a narrow range this week ahead of the FOMC meeting on December 17-18 and the BoJ Monetary Policy Meeting on December 18-19. If the November US payroll report (Dec 6) comes in much stronger than expected, speculation that the Fed will forgo a rate cut is likely to send the 10-year UST yield higher, and with it the 10-year JGB yield. If the jobs report is in line with the consensus forecast, mounting expectations of a Fed cut will probably weigh on the 10-year yields in both countries. But in that case, we think lingering speculation of a December BoJ rate hike would limit the downside for the 10-year JGB yield. The prevailing view among market participants for now is that the BoJ will hike at either the December or the January meeting. Even if this week brings news reports claiming the Bank is likely to forgo a December hike, the belief that the timing of the next rate hike is still approaching will probably curb any downside for the 10-year JGB yield. Although it may try to retake the 1.1% level if reports point to an increased likelihood of a December hike, we think it would fail and then fall back into its recent range.
