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JGB market unlikely to relax until BoJ and Fed meetings are over
This week the 10-year JGB yield trades with an eye on the results of the December17-18 FOMC meeting and the December 18-19 Monetary Policy Meeting in Japan. If the Fed decides to cut rates but Chair Jerome Powell makes hawkish comments regarding the risk of renewed inflation at his press conference, or if the "dot plot" indicates the possibility of an end to rate cuts sometime in 2025, the 10-year UST yield moves higher and puts upward pressure on its Japanese equivalent. The 10-year JGB yield also tests the 1.1% level if the BoJ surprises the market by opting toraise the policy rate to 0.5% on December 19. However, any upside for yields is relatively modest because the higher yields quickly elicit dip-buying demand. In the event the Bank decides to leave rates on hold, as the consensus expects, the market's reaction depends on the reasons given. If Governor Kazuo Ueda says at his post-meeting press conference that the timing of the next rate hike is "approaching" in the sense that developments in economic activity and prices remain on track, the 10-year JGB yield continues to trade in its recent range amid persistent speculation of a rate hike at the January 23-24 MPM. But if the governor cites uncertainty over the Trump administration’s economic policy as a reason for leaving rates on hold, market participants start to question not only whether the Bank will hike in January but whether it will hike at all in FY24. The 10-year JGB yield then slides lower in response and may even try to test the key 1.0% level.
