scroll

Thoughts on Japanese bonds/rates

Advanced Search

Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.

Ask a question

The Latest Q&A

Question asked 03/11/2023

Thoughts on Japanese bonds/rates

Hi guys. Thanks for the behind-the-scenes work which go in. Could you give you thoughts and implications with the Japanese rate curve please. Obviously the currency is being targeted so push the rate control to be raised. If they were to allow the rates to go to 1.5-2% what would happen with our own bonds and equities, along with other international markets. How about exchange rates? How likely and timeframes for such a move? My understanding would be that our equities take a big hit and our bond yields surge; would they likely be to a similar change to that of Japan, for example, both increase at the same rate. I believe they also hold a large U.S. holding, will this have a leveraged effect? Regards, Simon. (Send via phone so apologies about any fat finger spelling)

Answer

Hi Simon,

We believe that the BOJ wants to return to a “free market” in an orderly fashion, at lot easier said than done! We’ve answered your question (s) in bullet form for clarity:

If/when Japanese rates go to 1.5-2% we don’t believe it will have a major impact on our own bonds/equities, they are more at risk if US bonds kick higher affording an arguably safer and more attractive yield to our own bonds and stocks. Local 10s are ~4.74%, the US 10s are ~4.66%, while the Japanese JGB’s are still under 1%.
On the USDJPY front we believe its looking for a major swing high above the psychological 150 area which suggests US yields and the Greenback will turn lower into Christmas, a likely tailwind for equities.
In terms of Japanese equities they’ve enjoyed interest rates around zero for more than a decade, as rates rise we believe this outperformance is likely to end.

chart

Japanese 10-Year Bond Yield

LAST UPDATED 03/11/2023 14:43

Latest Reports

Afternoon report 17/04/2025

The Match Out: ASX strong as energy bounces back, commodity stocks impress on quarterlies

A bullish session after a decent hit to U.S markets overnight, particularly the tech sector which was -3.9% weaker amid further U.S tariff and policy intervention. It was a slow and steady move up over the day, opening flat but climbing ~5-10 points hour after hour.

Morning report 17/04/2025

What Matters Today: Did MM turn neutral towards Gold too early?

The ASX 200 performed well on Wednesday, considering US NASDAQ Futures were down over 2% by 4pm AEST, courtesy of poor news from both sides of the Atlantic before the respective bourses even opened. Global Tech stocks sank on a one-two of bad news for tech goliaths Nvidia and ASML, the last thing the embattled semiconductor sector needed.