The JGB selloff is nearing a crucial point

While FX intervention dominated the headlines a couple of weeks ago, Japan’s bond markets have come under increasing pressure. This Update argues that most of the past rise in yields has been benign, but that the market is approaching a point – if it’s not already there – at which the “reflation trade” is fully priced in. Further rises in inflation and yields, therefore, might put greater pressure on the BoJ to act, either through rate hikes or its balance sheet.