Flirting with zero

Japan’s 10-year government bond yield has been flirting with zero since the start of the year. Not so long ago, it was climbing towards the 0.2% ceiling of the “tolerance band” managed by the Bank of Japan. The outlook for domestic monetary policy hasn’t changed since then. But the global backdrop has. In particular, the move in Japan’s government bond market has tracked a similar shift in the US. We expect US Treasury yields to remain lower. Meanwhile, the Bank of Japan may prefer not to see the yield curve flatten too much further. If so, the 10-year JGB yield is likely to settle within a few basis points of zero.