BoJ sets its stall out, three more weeks of restrictions

The Bank of Japan’s first unlimited fixed rate auction in three-and-a-half years is likely to send a strong signal to investors that +0.25% is right now a clear line in the sand for 10-year JGB yields. For now, that quashes speculation that the 10-year yield target could be abandoned in favour of a pivot to shorter maturities such as 3- or 5-year yields, a move Governor Kuroda recently said could only be discussed when the time comes to exit ultra-loose policy. Meanwhile, daily virus cases fell for the first time since early December yesterday on a week-on-week basis. That supports our view that GDP will get back on its pre-virus trend as soon as Q3 this year.