Japan Economic and Financial Weekly Special Issue

This report provides a Q&A analysis on Japanese bond market TIBOR anomalies, the impact of non-resident JGB trading on curve steepening, and critical uncertainties surrounding the upcoming FY27 fiscal budget.

Key Takeaways

• 1.BoJ's June rate hike impact appears to have reached a plateau, with 3-month and 6-month TIBOR rates remaining sideways after the initial increase.
• 2.TIBOR curve inversion (1-year rate lower than 3/6-month rates) is primarily attributed to structural factors and limited liquidity in the 1-year tenor.
• 3.Non-resident selling of super-long JGBs in April does not necessarily signal steepener trade outperformance, as duration-neutral flattener trades also record as net selling.

Table of Contents

• Q1: [Yen bonds] TIBOR in wake of rate hike: Why is 1-year TIBOR lower than 3- and 6-month rates?
• Q2: [Yen bonds] Would super-long JGB net selling by non-resident investors suggest steepener outperformance?
• Q3: [Yen bonds] What are the key fiscal policy issues going forward?
• Q4: [Japanese economy] What are your forecasts for the policy-adjusted and unadjusted core CPI (CPI excluding fresh food)?

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