German and Italian experience suggests a sustained, significant drop in
ultra-long JGB yields is unlikely. If market concern that the BOJ is behind the
curve abates, 30-year JGB yields may fall, but such declines are likely
temporary. Fiscal worries that widen JGB ASW spreads can push ultra-long yields
back up. Even with stable inflation expectations and ASW, uncertainty over the
terminal BOJ policy rate can prevent a sustained downtrend—European 30-year
yields rose until ECB rates topped out. Near term, easing BOJ-behind-the-curve
fears could shave yields briefly, but year-end debate on the next fiscal-year
budget and relatively rich JGB ASW versus peers argue against a durable, trend
decline in ultra-long JGB yields.
