Japan Economic & Financial Weekly

The 10-year JGB yield treads water around 0.65% this week as it searches for a sense of direction. If the 10-year UST yield rises further in response to 5-10 year inflation expectations in the University of Michigan consumer sentiment survey for December (Jan 19), the 10-year JGB yield starts the week by moving higher in sympathy. But if the BoJ Policy Board decides to leave its ultra-easy monetary policy on hold when it meets on January 23 and Governor Kazuo Ueda makes dovish remarks at his post-meeting press conference, dip-buying picks up and the10-year yield takes on a downward bias. On the other hand, speculation of an early end to NIRP and expectations of higher bond yields are rekindled if the governor makes remarks that are viewed as being hawkish, prompting speculative selling and causing the 10-year yield to test the upside. The 20-year JGB yield trades at a level that keeps the 10s20s JGB spread in the range of 75-80bp.