Bloomberg: Additional rate hikes by the Bank of Japan are difficult to suggest, as the yield spread on medium-term government bonds is at its lowest level in nearly two years.
The yield curve of medium-term government bonds, which is susceptible to the impact of the Bank of Japan's monetary policy, has flattened in the bond market. This suggests that the market speculation of additional rate hikes by the Bank of Japan by the end of the year has drastically declined due to the policy shift of rate cuts in the United States.
The yield spread between newly issued 2-year government bonds and 5-year government bonds, which easily reflects the expectation of medium-term changes in the Bank of Japan's policy, hit a record low of 11 basis points (bp) compounded on the 17th, the lowest level since November 2022. The small difference between the two, which indicates the policy interest rate levels two years and five years from now, suggests that the policy interest rate is unlikely to change much in the medium term. This makes it easier for buying to enter long-term and super long-term bonds with longer remaining terms, and the overall interest rates are more likely to be pushed down.
Ahead of the Bank of Japan's decision meeting on the 19th and 20th, it is highly likely that the Federal Reserve Board (FRB) will make a rate cut for the first time in about four and a half years at the Federal Open Market Committee (FOMC) on the 17th and 18th, which has been confirmed since March 2020. As the globalization of the economy progresses, the Bank of Japan has a history of holding back on rate hikes during periods of rate cuts in the United States.
Takashi Fujiwara, Head of Bond Investment and Chief Fund Manager at Resona Asset Management, pointed out that if the United States implements a significant rate cut, it will create headwinds for the Bank of Japan, and the possibility of additional rate hikes in January of next year will also be low. He stated, "If the yen continues to strengthen and prices do not rise much, the timing of rate hikes becomes unclear," and mentioned that if Sanae Takaichi, the Minister of Economic and National Security, is elected in the Liberal Democratic Party leadership election, "there is a possibility that rate hikes will stop."
The yield spread between newly issued 2-year government bonds and 5-year government bonds, which easily reflects the expectation of medium-term changes in the Bank of Japan's policy, hit a record low of 11 basis points (bp) compounded on the 17th, the lowest level since November 2022. The small difference between the two, which indicates the policy interest rate levels two years and five years from now, suggests that the policy interest rate is unlikely to change much in the medium term. This makes it easier for buying to enter long-term and super long-term bonds with longer remaining terms, and the overall interest rates are more likely to be pushed down.
Ahead of the Bank of Japan's decision meeting on the 19th and 20th, it is highly likely that the Federal Reserve Board (FRB) will make a rate cut for the first time in about four and a half years at the Federal Open Market Committee (FOMC) on the 17th and 18th, which has been confirmed since March 2020. As the globalization of the economy progresses, the Bank of Japan has a history of holding back on rate hikes during periods of rate cuts in the United States.
Takashi Fujiwara, Head of Bond Investment and Chief Fund Manager at Resona Asset Management, pointed out that if the United States implements a significant rate cut, it will create headwinds for the Bank of Japan, and the possibility of additional rate hikes in January of next year will also be low. He stated, "If the yen continues to strengthen and prices do not rise much, the timing of rate hikes becomes unclear," and mentioned that if Sanae Takaichi, the Minister of Economic and National Security, is elected in the Liberal Democratic Party leadership election, "there is a possibility that rate hikes will stop."
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