VIEW: Goldman Sachs: BoJ Purchases Lower Odds Of YCC Breach For Now

Goldman Sachs note that “the combination of BoJ fixed rate operations, an upsizing in its quarterly bond purchase schedule, and consolidation in global yields moves relieved some of the upward pressure on JGB yields seen through March. While the BoJ’s actions showed continued commitment to defending the ±25bp tolerance band around its YCC target for 10-Year JGB yields, we expect continued increases in overseas yields will see renewed upward pressure on these yields over the course the year. Indeed, options markets are pricing a small increase in the odds that 10-Year yields will breach the tolerance band, given that continued bond buying could put further pressure on the yen, which had begun to approach levels where some officials expressed concern. The BoJ, however, has not expressed strong concern yet around yen weakness, and our economists expect no substantial changes to monetary policy this year. More broadly, unlike the rest of G10, Japan has not been confronting elevated inflation, leaving the BoJ more manoeuvring space vis-à-vis its policy setting. As a result, in contrast to other developed markets, we leave our JGB yield forecasts unchanged for now, watching for any indications of building discomfort with the USD/JPY levels as an early barometer for more material policy changes down the road.”