Japan Economic & Financial Weekly

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Market's initial reaction to Policy Board meeting results on March 19

Developments in the 10-year JGB yield this week will depend on the results of the March 18-19 Policy Board meeting. If recent speculative reports and potential leaks are correct and the Bank opts to wind down both NIRP and YCC at the meeting, the 10-year yield rises further, even though such an outcome has already been largely priced in. The proximate cause is growing concern about the Bank’s next move, such as another rate hike or a tapering of its asset purchases. Mounting expectations of higher yields prompt the 10-year yield to test the upside with an eye on the key psychological level of 1.0%. If the BoJ decides instead to leave policy on hold, the 10-year yield moves modestly lower on short-covering, but soon reverses higher on targeted selling driven by increased certainty of April policy revisions. The 30-year JGB yield trades at a level that keeps the 10s30s JGB spread at around 105bp