Japan: Yields a key catalyst for bond market - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that probably the most significant bond negative development appears to have come from the rhetoric of the BoJ suggesting they would prefer higher longer-term bond yields. 

Key Quotes

“As such their policy announcement on 21 September is a crucial event.

However, comments from Kuroda and Deputy Governor Nakaso indicate that they want to at least maintain the overall “level” of policy accommodation.  This suggests that, if they want higher long-term yields, they prefer to balance this with lower short-term yields.  This suggests that they may opt for a deeper negative interest rate policy.

There is a high degree of uncertainty over how the BoJ will adjust policy to achieve this goal of a twist in its curve and the effects that it may have on global bond markets.  If the BoJ ops for a deeper negative cash rate target this may limit the overall upward pressure on bond yields.  Nevertheless, there may be scope for higher long-term yields even if the cash rate target is moved deeper into negative territory, especially if it is accompanied by a weaker JPY.”