Emergency extension, more flexible JGB yield target

While the government this week extended the state of emergency by a month in virus hotspots, with daily infections falling sharply and the start of the vaccine rollout imminent there is light at the end of the tunnel. Indeed, we continue to forecast a slight rise in GDP this quarter. Meanwhile, at its March review the Bank of Japan looks set to widen the tolerance band for its 10-year yield target of “around zero”. But given that the Bank has in the past shown that it can successfully defend that target, that’s unlikely to put much upwards pressure on yields.