Japan: Rate expectations are now even lower - SocGen

Kit Juckes, Research Analyst at Societe Generale, suggests that Japanese rate expectations are now even lower as a market, which prices rates at just 11bp in five years’ time, clearly isn’t looking for any BoJ action soon.

Key Quotes

“A sleeping volcano is as good a way of describing the yen FX and rates markets as any. As soon as the BoJ indicates even the slightest policy shift, re-pricing is inevitable. This is what makes the yen outlook difficult. For now, we can hope for a very slow grind higher in the USD/JPY as the BoJ remains on hold, but limited by the very strong correlation of the USD/JPY with TIPS yields (on current form, we need 1% 10year TIPS to get the USD/JPY back close to 120, and we haven’t seen 1% TIPS since 2011...). Longer term, a sharper fall in the USD/JPY seems very likely indeed.”