Japan Economic & Financial Weekly

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Maintaining our outlook for 10-year JGB yield despite US CPIshock and UST weakness

The 10-year JGB yield treads water with an upward bias this week as it nervously tries to stabilize following the recent surge. There are further speculative news reports (or leaks) regarding upward revisions to the BoJ’s inflation projections in the April 26 Outlook Report. Speculative selling adds to upward pressure on JGB yields if the weak yen also fuels expectations of early additional rate hikes. Meanwhile, the 10-year JGB yield experiences a certain amount of downward pressure if bargain-conscious dip buyers gain the upper hand in the UST market and send the 10-year UST yield lower following its break above the key psychological threshold of 4.5%. In effect, start-of-FY demand from buyers who had been waiting for a dip finally starts to emerge. The 30-year JGB yield trades at a level that keeps the 10s30s JGB spread at around 108bp