JAPAN: Some Market Viewpoints On Implications From Rising JGB Yields
The move higher in Japanese yields may have some serious implications for the BOJ and by extension the US bond market. Below are some market viewpoints on potential implications from the recent surge in yields.
- “Those JGBs issued by the Japanese government with super-low yields over the past decade were snapped up by one huge price-insensitive investor, the BoJ. Now that the BoJ wants to step back, long term yields are shooting up. The BoJ is sitting on one GDP of JGBs. Sizable mark-to-market losses for BoJ.”
- “Why do "paper losses" on the central bank balance sheet matter? Well, the BoJ arranged a huge fixed-for-floating interest rate swap (1 GDP), paying floating and receiving fixed. If you consolidate the BoJ and the Treasury, that means huge losses for Japan's taxpayers. These "paper losses" measure the costs for Japanese taxpayers of failing to lock in low long rates.”(per Hanno Lustig, see the below link) https://x.com/HannoLustig/status/1925215266402943062”
- “For over a decade, the BoJ bought all of Japan's net new debt issuance. That's over. The rise in Japan's long-term yields is thus about price discovery. Markets are figuring out what long-term yields should be for a country with debt-to-GDP around 240%. Presumably a LOT higher… (per Robin Brooks see the below link) https://x.com/robin_j_brooks/status/1925210837976764429”
However, BoJ board member Noguchi's earlier remarks didn't hint at any major concern around the recent sharp rise in JGB yields, at this stage. He noted - via Rtrs: "BOJ'S NOGUCHI: PERSONALLY DON'T SEE NEED TO MAKE BIG CHANGES TO EXISTING BOJ TAPER PLAN, whilst adding "BOJ'S NOGUCHI: AS FOR TAPER PLAN FOR APRIL 2026 ONWARD, WE NEED TO EXAMINE WITH A LONGER-TERM PERSPECTIVE", and "*NOGUCHI: MARKET SHOULD DECIDE LONG-TERM INTEREST RATES" - BBG.
Fig 1: Issuance and Purchase of Japanese Gov Bonds, 4-quarter sums in % GDP
Source - Robin Brooks on X
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FOREX: Early USD Gains Not Sustained, USD/JPY Close To 140.00 Test
Earlier USD gains haven't been sustained, with the G10 currencies supported on dips so far today versus the USD. The BBDXY index was last near 1214, down around 0.15% for the session, but still above intra-session lows from Monday (near 1212).
- There hasn't bene an obvious catalyst for this turnaround in USD sentiment since this morning. US equity futures are still positive, albeit off earlier highs. Regional equity sentiment is mixed, but outperforming Monday's cash US falls (so hinting at further US asset market underperformance). US Tsy yields are little changed in latest dealings.
- Yen is the strongest performing G10 currency, with USD/JPY finding selling interest above 141.00. We track near 140.15/20 now, up 0.50% in yen terms. This is fresh lows in the pair back to September last year. Sep 16 lows from that period were at 139.58.
- EUR/USD is back up to 1.1535/40, just short of recent highs (1.1573). USD/CHF is back under 0.8100 but little changed for the session.
- AUD/USD is near 0.6430/35, eyeing Monday highs close to 0.6440, while NZD/USD is up to 0.6015/20.
AUD: AUDUSD Range Trading As Sentiment Stabilises, Fed Speak Later
AUDUSD approached 64c earlier in the APAC session but rebounded following a higher CNY fixing. The pair is now up 0.2% to 0.6427, close to the intraday high and just below resistance at 0.6428. Risk appetite appears to have stabilised with mixed equity and commodity prices, which is probably contributing to the narrow range in AUDUSD. After falling 0.7% yesterday, the USD index is flat but off today’s peak.
- Aussie is little changed against other major currencies, which it weakened against on Monday. AUDNZD is slightly higher at 1.0697 following a peak of 1.0706. AUDJPY is down 0.1% to 90.30 after rising to 90.58. AUDEUR is up 0.1% to 0.5579 but off today’s high of 0.5588 and AUDGBP is flat at 0.4796 after breaking above 0.4800 briefly.
- Equities are mixed with the S&P e-mini up 0.6% and KOSPI +0.1%, ASX & CSI 300 flat, but Hang Seng down 0.5% & TAIEX -0.8%. Oil prices are higher with WTI +0.7% to $62.85/bbl. Copper is up 0.6% but iron ore is below $99/t.
- Later the Fed’s Jefferson, Harker, Kashkari, Barkin and Kugler appear with the focus likely to be on any comments related to central bank independence. April Philly/Richmond Fed indices and preliminary April euro area consumer confidence print. The ECB’s de Guindos speaks.
AUSSIE BONDS: Richer On A Data-Light Day, Apr-29 Supply Tomorrow
ACGBs (YM +5.0 & XM flat) are mixed but sitting near Sydney session highs as trading resumes after the Easter weekend. The local calendar has been light today ahead of S&P Global PMIs tomorrow.
- Cash US tsys are slightly mixed, with a flattening bias, in today's Asia-Pac session after yesterday's long-end sell-off.
- Cash ACGBs are 2-7 bps richer with the AU-US 10-year yield differential at -14 bps.
- Swap rates are 1-5 bps lower, with the 3s10s curve steeper.
- The bills strip has bull-flattened, with pricing +1 to +5.
- RBA-dated OIS pricing is 1-8 bps softer across meetings today. A 50bp rate cut in May is given a 24% probability, with a cumulative 122bps of easing priced by year-end (based on an effective cash rate of 4.09%).
- The AOFM plans to sell A$1000mn of the 3.25% 21 April 2029 bond tomorrow.
