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Updated December 29th, 2023 at 12:14 IST

JGB yields witness uptick in tame conclusion to most volatile year since 2008

The 10-year JGB yield rose by 3.5 basis points to 0.62 per cent, aligning with the overnight rebound in US Treasury yields.

Business Desk
Government bonds
Government bonds | Image:Republic
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Japanese government bond (JGB) yields witnessed a modest increase on Friday, capping off the most volatile period since the global financial crisis. However, these yields are expected to conclude the year only slightly higher than their starting point.

The 10-year JGB yield rose by 3.5 basis points to 0.62 per cent, aligning with the overnight rebound in US Treasury yields. The US yields recovered from five-month lows, propelled by increasing expectations of a Federal Reserve shift towards rate cuts in the early months of the upcoming year.

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The journey of Japan's benchmark yield throughout the year has been marked by substantial fluctuations, ranging from as low as 0.24 per cent in March to a decade-high of 0.97 per cent in November. This year's volatility has been characterized by sharp shifts in expectations regarding when the Bank of Japan (BOJ) might commence stimulus unwinding. The 73-basis-points range observed this year is the most extensive since the 74-basis-points swing witnessed in 2008.

Despite the noteworthy fluctuations, the Japanese 10-year yield is anticipated to conclude the year with a modest 21 basis points increase. This figure pales in comparison to the 34 basis points rise recorded in the previous year. Nevertheless, this marks the fourth consecutive annual advance as Japan navigates its way out of deflation, and the possibility of monetary stimulus reduction looms larger on the horizon.

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While speculations have diminished regarding an immediate end to negative interest rates at the January policy meeting, due to the central bank's persistent dovish stance, analysts and investors are eying a potential policy shift by April.

Naka Matsuzawa, Chief Japan Macro Strategist at Nomura Securities, suggested, "The main reason that the BOJ is currently avoiding taking decisive action on the timing of the lifting of negative rates is less due to the Japanese economy and wage conditions than (due) to the uncertainty around the US economy and monetary policy conduct." He added that the BOJ might be influenced by the sudden dovish pivot at the December Federal Open Market Committee (FOMC) and the market's swift response in pricing in rate cuts beyond the communicated message.

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(With Reuters inputs)
 

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Published December 29th, 2023 at 12:14 IST

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