Japan 20 Year Government Bond Yield (%).
In its July 31, 2018 statement, the Bank of Japan noted that it decided to “strengthen its commitment to achieving the price stability target by introducing forward guidance for policy rates, and to enhance the sustainability of ‘Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control’”.
With respect to Yield Curve Control, the bank indicated it would continue buying 10-year Japanese government bonds (JGBs) so that the 10-year yield remains around zero percent.
In spite of this being unchanged from their statements over the past 18 months, this time around, the market seems to be interpreting it differently.
As recently as July 20, 2018, the yield on the 20-year JGB was 48 bps. By August 2, it had broken sharply above its trend line, jumping to 63 bps, an increase of 32%.
Ultimately only time will tell, but with rates in the US, now two years off their lows, this breakout may be signaling that Japan is the next domino to fall as rates around the globe revert back to their pre-crisis norms.
Unless otherwise noted, data is sourced from Bloomberg.
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