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Double Whammy of Weak Yen, Rising Yields Piles Pressure on BOJ - BLOOMBERG
(Bloomberg) -- The weakening yen and rising bond yields are ramping up pressure on Bank of Japan policymakers to increase interest rates.
The swap market is almost fully pricing in another rate increase by the end of the fiscal year in March, with strong odds for a hike by the BOJ’s January meeting.
The Asian nation’s sovereign bond yields have climbed along with US Treasuries amid expectations that President-elect Donald Trump will pursue inflationary policies, which would also contribute to consumer price gains in Japan.
“We are currently calling for a hike in December, and actually calling for four more over the course of the next year,” said Sonal Desai, chief investment officer for fixed income at Franklin Templeton. “I think it’ll become more and more clear that their inflation target is being sustainably met,” she said.
Traders now see almost a 50% chance of the BOJ lifting rates from 0.25% at its December policy meeting, according to overnight index swaps. The probability rises to 83% by January, and 98% by March.
The yen has extended declines since last week’s election to around 155 against the dollar, leading some in the market to position for further depreciation.
In the bond market, two-year yields have reached the highest since December 2008 and five-year yields hit a 15-year high of 0.68%. Yields on 10-year JGBs, a benchmark for long-term interest rates, are above the 1% mark.
--With assistance from Hidenori Yamanaka.
