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JGB yield and yield curve scenarios for January and 2025
Long-term and super-long-term JGB yield scenario for January
The 10-year JGB yield continues to trade in a narrow range around 1.0% - 1.1% in January. Market participants closely monitor BoJ communications and news reports for hints as to whether the central bank, after indicating a cautious stance on further rate hikes at the December Monetary Policy Meeting, will raise the policy rate to 0.5% at the January 23-24 (Outlook Report) meeting or stand pat once again. If Bank messaging or media reports suggest a January rate hike is likely, the10-year yield takes out its FY24 high of 1.100%, although dip-buying demand emerges once yields climb to around 1.15%. If no such indications are forthcoming, the 10-year yield takes on a downward bias due to growing speculation that the next hike will be postponed until March. However, the fact that the BoJ still intends to gradually raise the policy rate, coupled with the probability that the 2025 wage talks will produce significant increases in base pay, fuels speculation of higher rates going forward and limits the downside for the 10-year yield. One risk factor is the outlook for US tariff policy under a Trump administration. If the new president declares the US will quickly implement across-the-board tariffs on imports from all countries, including Japan, increased fears of a Japanese economic downturn fuel expectations that the next rate hike will be delayed until FY25 or beyond, and the10-year JGB yield breaks below the key 1% threshold (risk scenario).
