Goldman: BoJ & MoF Intervention Likely To Pressure Long-End Yields Further

Late on Friday Goldman Sachs wrote “the BoJ maintained the status quo across its policy parameters in a week where the bearish impulse across global duration intensified. The on hold BoJ decision was followed in relatively short order by the Ministry of Finance’s first intervention against JPY depreciation in 24 years, signaling discomfort with the rapid pace of the currency weakening.”

• “With the JGB curve effectively capped out to the 10-Year point, higher global yields had translated to a combination of steeper long-end curves and a weaker currency.”
• “A MoF that remains committed to measures that restrain the speed of JPY depreciation further limits the outlets for global pressures, with long-end JPY rates one of the few remaining areas that could properly reflect underlying fundamentals.”
• “This should mean that an extension in the move higher in yields abroad is likely to be felt somewhat more strongly in long-end JPY yields, with curves steepening (and very likely BoJ fixed rate operations seeing greater uptake).”
• “We continue to like bearish exposure in 20-Year JPY rates and think long-end vol should be better supported going forward, both on an outright basis and relative to FX volatility.”