The BoJ and monitoring yields outlook - Nomura

Analysts at Nomura explained that the BOJ’s dovish stance is capping nominal yields, and real 10yr yields have declined rapidly over the past few weeks. 

Key Quotes:

"Inflation expectations in Japan have been gradually recovering, as oil prices have recovered. 10yr breakeven inflation expectations have risen to 0.61%, the highest level since December 2016."

"At the press conference after the December meeting, Governor Kuroda repeated that financial intermediation was not impaired in Japan, rejecting near-term tightening to help financial institutions. At the Japanese Bankers Association on 4 January Governor Kuroda said the BOJ would patiently continue its accommodative policy." 

"The next important BOJ event will be the announcement of the new BOJ leadership, which is likely before end-February."

"Under the current BOJ leadership the likelihood of tightening is very low, which leaves limited room for nominal yields to rise."

"As a result, real yields will decline further if inflation expectations continue to recover. For the next few months, yen crosses may benefit from any further rises in inflation and inflation expectations, amid a low risk of BOJ policy changes."