J.P.Morgan Sketch Out Potential Moves If BoJ Removes YCC This Week

J.P.Morgan note that they “do not expect a complete YCC exit this week, but it is worthwhile to analyse where JPY rates stand in terms of pricing in a complete removal of YCC.”

• “Under a complete YCC exit scenario, in the JGB space, unsurprisingly, the 10-Year yield is expected to jump by another 25bp, +/- 15bp, in our view. The 2-Year yield is likely to move higher by around 10bp vs. Friday’s close, and the 30-Year yield also likely has room to rise.”
• “In the swap space, we think the market has fully priced in a YCC exit already. We envisage long/super-long swap spreads should narrow on the back of profit-taking if the BoJ moves, although it may take some time for short/intermediate swap spreads to retrace to more normal levels as expectations of a NIRP exit are likely to stay for some time.”