A former BoJ executive suggested that the Bank of Japan may tolerate 10-year yields rising to 0.4% even while keeping its official target at zero. This would lift trading income, increase returns on bond holdings and might also encourage banks to lift lending rates. By contrast, we think that the Bank will continue to prioritise subdued inflation over financial stability concerns. The upshot is that 0.2% will probably turn out to be the ceiling for 10-year yields over the coming years.
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