Can someone please explain a little about why the recent spike in Japanese bond yields? (The yen strengthening, plus Japanese yields increasing plus Negative Chinese PMI data led to Nikkei correction)
Isn’t this what the BOJ wants? (To expand domestic capital flow out of JGBs? which i would think would be a sell off of gov bonds hence hield spike?
Essentially what does this mean in terms of mkt fundamentals? I would appreciate further insight on this thank you so much
Hi there,
I have followed the eur/jpy for 2 years
This happens every time there is a lot of gain a few announcements come out and the market pulls back to the main support level. Last time it was 12500 and this time it is 13000. Look to buy on every pull back near this area. A very profitable market
Thats about right - people in Japan are selling out of Japanese bonds for better yielding instruments. Why did the yen drop? I guess it was time for people to take profits on the Nikkei - if you looked at its direction over the last few months it was bound to happen at some point, although it was always difficult to say where and when. I guess when people started to sell, others followed in earnest and that caused a strengthening in the yen as well.
The BoJ wanted higher inflation, but not necessarily yields spiking so fast, though nominal rates will adjust to higher inflation in the long run.
10 year JGB yields were up 0.4% in like 2 weeks when they peaked at 1%. A massive selloff would create panic amongst financial institutions which own most of the national debt in Japan. An increase from 0.5% yield to 1.5% yield on a 10 year bond is around a 9% mark to market loss.
So if yields rise too fast, there is 1) panic in the financial markets from uncertainty which hits stocks 2) worries over how strong the BoJ’s resolve will be, and may even put into question the credibility of its resolve in continuing QE, this would cause yen to surge/rebound/consolidate for a while till either 1) things are clearer in Japan, 2) Bernanke moves to taper in the US
Thank you all for the responses, i really appreciate it. I’m starting to realize that the BOJ has a extremely hard and dangerous task ahead of themselves, after suffering decades of deflationary conditions.
Now in order to sustain this Nikkei rally in the future and to reach inflation, how weak should the JPY get to the USD?
Great insights once again thanks
Its much more governed by the economic statistics that the BOJ will get well ahead of their data releases. If they think that they are going to approaching their inflation target then they will reduce their easing.