With the Japanese bonds reaching the 2016 level, the BOJ stepped in and made some purchases under the fixed rate control. The central bank has announced that it will buy unlimited amounts of benchmark bonds at a fixed rate. This shows that; BOJ has entered the market to limit yields in the global bond selloff environment. The central bank still keeps the monetary adjustments loose and follows a path that the policy remains unchanged in the crisis/inflation dilemma.
With the decision, the yen has increased its depreciation. Yen hit 125 level against dollar for the first time in 7 years. The move potential will be determined by the US-Japanese bond interest rate gap, and the Japanese interest rates remaining stable or falling with Central bank purchases within the framework of yield control will trigger the depreciation of the yen. This means that the USDJPY will rise.
10-year UST-JGB spread analysis… Source: Bloomberg
The Fed cycle will intensify such movements. Today, we can say that inflation and monetary tightening pricing are predominant in the direction of the US bond yields. Term funds have centered the interest rate hike by 50 basis points in May, and it should be taken into account that rate hikes, which may go one step further in the May-June period, will be carried forward together with the balance sheet reduction. The selloff in the bond market may not be over, as higher inflation will mean a further rise in interest rates.
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