Japan Economic & Financial Weekly

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Rate hike expectations recover on backlash against US pessimism and dovish BoJ speculation     

The 10-year JGB yield trades in the 0.9% - 1.0% range this week. If its US equivalentrises on fading speculation of large Fed rate cuts, or if the yen continues to weakenagainst the dollar, the 10-year yield moves higher on renewed speculation of an earlyBoJ rate hike. The advance accelerates if Governor Kazuo Ueda presents a hawkishstance at the IMF event early on the morning of October 24 (Japan time). But the10-year JGB yield sinks if he offers more dovish remarks and says there is no needto rush ahead with the next rate hike decision. In either case, no clear trend emergesahead of the Lower House election on October 27 (Sunday) because an LDP failureto win a majority (233 seats) on its own could significantly influence the policyconduct of the Ishiba administration, including its stance on fiscal policy. For example,market participants might start to worry about a larger supplementary budget forFY24 or grow concerned about the outlook for the MoF’s FY25 debt issuance plan.