Mizuho Relatively Sanguine On Idea that BoJ Exit From NIRP Will Trigger Sizable Global Shift

Mizuho believe that “the BoJ’s October meeting broadly lays the groundwork for an end to NIRP. Indeed, we expect the BoJ to end negative interest rates in early 2024.”

• “Rising neutral rates and massive supply, accentuated by QT, are likely much bigger factors in the surge of global yields than a small move in the BoJ policy rate.”
• “It may well be the case that QT in Japan also plays a role in pushing global yields higher, but that development seems a much more distant prospect than positive policy rates.”
• “We note that Japanese investors sold a substantial amount of overseas bonds in FY22. Since then, they have actually been modest net buyers of overseas bonds rather than on-going sellers.”
• “We suspect this will remain the case in H2 FY23, with the recent curve dis-inversion making overseas markets a little more attractive to Japanese investors.”
• “Japan’s major life insurance companies noted mild appetite for buying overseas bonds on an unhedged basis.”
• “Hedged foreign bonds remain of limited interest due to the prohibitive cost of hedging.”
• “In addition, the spread vs overseas bonds will remain wide even after the BoJ ends NIRP.”
• “Our baseline forecast sees a mild rise in JGB yields in 2024 and declines in EGB, UST and Gilt yields but the spread will nonetheless remain substantial. This will limit the incentive to repatriate funds.”