The Japanese 2-year Government Bond (JGB) yield has surged toward 1%, after being deep in negative territory for many years. Last week at its two-day meeting, the BOJ kept the short-term policy rate unchanged at 0.5%, as expected. Importantly, two of the BOJ’s board members dissented from the decision to hold rates and instead argued in favour of a rate increase, suggesting growing internal hawkish pressure. Also, the plans to begin selling part of its massive holdings of exchange-traded funds (ETFs) and real estate investment trusts (REITs) mark a clear move toward unwinding the extraordinary stimulus that’s been in place.
- The Japanese 2-year JGBs look to trade lower (yields higher) medium term, but into Christmas, we can see the 1% are capping the move.
MM is now neutral toward the Japanese 2s short-term
