BOJ pivot pressure to ease as SVB collapse drags US yields lower

THE pain in the US banking sector may turn out to be a blessing for incoming Bank of Japan (BOJ) governor Kazuo Ueda.

Japan’s benchmark 10-year government bond yield dropped to 0.32 per cent, the lowest level since the BOJ unexpectedly doubled the yield cap to 0.5 per cent on Dec 20. The move came in the wake of a slide in US yields after the collapse of Silicon Valley Bank (SVB) tempered hawkish Federal Reserve rate-hike bets, and may ease pressure on the BOJ to abandon its yield curve control programme.

“Japanese rates have climbed due to pressure from global rates despite no possibility of BOJ normalising its policy anytime soon,” said Takeshi Minami, Tokyo-based chief economist at Norinchukin Research Institute. Speculation of faster US rate hikes is waning and even a “25-basis-point hike by the Fed may ease the pressure on Japanese rates”, he said.

Expectations for the BOJ to scrap its yield-curve-control policy had gathered steam after the surprise BOJ move in December. BOJ pivot bets also gained momentum as global rates climbed, forcing the Japanese central bank to buy notes, which in turn made the market dysfunctional.

The BOJ left its negative interest rate and its cap on government debt yields untouched on Friday at Haruhiko Kuroda’s final meeting as the central bank’s chief. His successor Ueda has said the benefits of monetary stimulus outweigh its side effects. BLOOMBERG