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Forex Flash: Does the JGB sell-off matter? - Societe Generale

FXstreet.com (Barcelona) - Kit Juckes, Global Head of Currency Strategy at Societe Generale notes that weekly change in the 10yr JGB yield shows that they have jumped, in relative terms, faster than any other asset market, even if they are ‘only’ at 85bp now.

He adds that JGB yields don’t correlate terribly well with the Nikkei, the yen, or anything else much, for
that matter, so by the time it has been argued that yields are low in absolute terms and low relative to the BOJ’s inflation target, and that the weekly jump in yields is, in absolute terms, only a little larger than in Treasuries, you can pretty quickly dismiss the whole move as irrelevant. However, he write, “It’s the biggest absolute move in a week since 2006 too. So the question is whether this is a storm in a teacup, or a canary on a coalmine? Will Japanese investors switch back from equities to bonds? Will capital outflows reverse? Do higher bond yields and a falling currency signal that Abenomics will fail as inflation expectations pick up and a debt crisis comes into full view? I’m watching, and more confident, for now, of further yen weakness than of the idea that yen weakness will drive global risk markets ever higher.”

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