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JGB yield and yield curve scenarios for March and FY25-FY27
The 10-year JGB yield is rangebound in March. Investors grow less active ahead of the fiscal year-end, preventing any clear sense of direction from forming. The two key factors to watch are 1) US tariff policy and 2) BoJ communications in view of (1). With respect to the former, President Donald Trump on March 4 announced a 25% import duty on goods from Mexico and Canada and has indicated plans to raise the tariff on Chinese goods by another 10%. On March 12 the US is scheduled to slap a 25% tariff on imported steel and aluminum. Other sources of concern include the reciprocal tariffs and automobile tariffs that have been discussed and which could directly affect Japan. Against this backdrop, the 10-yearJGB yield would probably come under downward pressure if a repricing of Trump risk sent the markets into "risk-off" mode. On the topic of BoJ communications, Deputy Governor Shinichi Uchida is scheduled to speak to business leaders in Shizuoka on March 5, with a Monetary Policy Meeting to follow on March 18-19(we expect monetary policy will be left on hold at the meeting). There could be speculation that the next rate hike will be postponed if Mr. Uchida repeats what he said in a speech last August ("the Bank will not raise its policy interest rate when financial and capital markets are unstable") or if Governor Kazuo Ueda reiterates the heavy uncertainty hanging over US policy at his post-MPM press conference. Meanwhile, if the governor or either of his deputies were to emphasize the mounting inflationary pressures caused by domestic labor shortages, it would probably have only a modest impact on the policy rate path being priced in by the market (which currently sees the policy rate climbing to 1.00% by end-FY25), and any downside for the 10-year JGB yield would be limited.
