Japan's 10-year JGB yield reversed on Monday, rising 3bps to 2.79% after an
intraday low of 2.735%, as markets priced potential shifts in the Government
Pension Investment Fund's (GPIF) strategy. The 10-year had fallen 17bps on
Friday after Japan's finance minister Katayama said the government would explore
measures to encourage GPIF to boost domestic financial-asset allocations. SMBC
Nikko Securities' FX and rates senior strategist Rinto Maruyama said the market
overreacted and that Friday's buying reflected traders seeking a rebound after a
heavy weekly sell-off. Under current rules GPIF could raise domestic bond
allocations by up to ¥12.26 tln; Maruyama estimates that if 70% of that were
placed in 10-year JGBs over three years, the 10-year yield could fall as much as
7bps, and if other investors followed the move the impact could reach about
20bps.
