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Yen to weaken further, domestic demand picking up

While the Bank of Japan was clearly in no mood today to give any ground to the bond traders testing the ceiling of Yield Curve Control, it would be even less keen to effectively shut down the JGB market by hoovering up the outstanding bonds it doesn’t already own. As such, we  think it will try to relieve pressure by raising the ceiling before long. However, that wouldn’t be enough to put a lasting floor under the yen, which we still expect to end the year weaker than it is today.  Elsewhere, the jumps in machinery orders in April and in import volumes in May are encouraging signs that domestic demand is rebounding strongly. Markets Drop-In (22nd June, 10:00 ET/15:00 BST): Join our Markets team for this special briefing on the outlook for equities, bonds and FX and a discussion about revisions to our forecasts. Register now
Tom Learmouth Japan Economist
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A reprieve for Yield Curve Control

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BoJ to raise ceiling on 10-year yields

The weakening in the yen to a 24-year low and a crack in the Bank of Japan’s ceiling on 10-year yields today is putting significant pressure on policymakers to respond. FX intervention is a possibility, but we doubt it would be effective. We suspect the BoJ will raise the ceiling on long-term interest rates from 0.25% to 0.50% before long, buying itself a respite from pressure on JGB yields and on the yen.

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