Japan Economic & Financial Weekly

To read the full report, please download PDF.

JGB market in tug-of-war between first Fed rate cut and start to BoJ QT

The yield on the newly issued 10-year JGB starts the week with a downward bias but ultimately finds support. Factors driving it lower include mounting speculation of a September start to Fed rate cuts and a corresponding unwinding of short-yen positions in the forex market, which pushes the yen higher against the dollar. However, last week’s meetings of the Bond Market Participants Group do not appear to have led to a clear consensus on the BoJ’s “detailed plan” for reducing its bond purchases, which will be released at the July 30-31 Policy Board meeting. Concerns about the potential for larger-than-anticipated cuts help keep the downside for JGB yields in check. There are also renewed worries about additional rate hikes if news reports claim the July Outlook Report will indicate “increasing confidence” in the Bank’s ability to achieve the 2% price target in a sustainable and stable manner.