On Thursday Japan's short-term government bond yields hit their highest level
since April 1995 as the 2-year JGB rose 2bps to 1.865%. The move followed a
hawkish Fed hike and expectations of further US tightening, which pushed
equivalent US yields and spilled into JGBs; markets price a 25bp BOJ move to
1.25% on Friday and roughly quarterly hikes thereafter that would lift the
policy rate toward about 2% within a year. Portfolio manager David Clewell said
markets are focused on how much the BOJ will open the door to further
normalization to avoid a sharp USD/JPY depreciation after the recent dollar
rebound. Longer-dated JGBs fell as oil eased inflation worries, producing a
twist-like flattening of the curve: 40-year down 5bps to 4.115%, 20-year down
1.5bps to 3.84%.
