Goldman: Slower-Than-Expected NIRP Exit And External Factors Should Steepen JGB Curves

Goldman Sachs note that their “economists believe markets may have over interpreted officials’ comments, particularly Governor Ueda’s, given that he also indicated (at the same hearing) that the policy stance had not changed since the October MPM and that there was not sufficient certainty that the Bank’s “sustainable inflation” goals had been achieved.”

• “As a result, our economists maintain their forecast for a policy pivot towards tightening only following the spring shunto wage negotiations.”
• “Markets, in our view, have become too optimistic on the odds of an early NIRP exit.”
• “There is room for the 10y JGB yields to revert at least towards our fair value range of 80-100bps.”
• “At the same time, a slower timeline for NIRP exit, and a relative small magnitude of policy rate increases thereafter should mean front-end forwards should roll down the curve.”
• “As a result, we continue to like holding 6m2y/6m10y JPY OIS swap curve steepeners.”