Rates Strategy Weekly

This report analyzes the impact of the Takaichi administration's reflationary policy stance on Japan's interest rate environment. Mizuho expects short-term bear-steepening of the JGB curve but maintains a baseline scenario of limited long-term rate increases.

Key Takeaways

• 1.Market participants are increasingly focused on potential reflationary economic policies under the Takaichi administration, including expansionary fiscal policy and potential government pressure to keep monetary policy dovish.
• 2.Baseline expectations do not project a sustained, long-term rise in interest rates above current levels, despite short-term volatility and testing of the upside.
• 3.The JGB curve has shown bear-steepening tendencies, influenced by weak 10y JGB auction results and ongoing market sensitivity to potential policy shifts.

Table of Contents

• (1) Will the reflation trade be rekindled?
• DEVELOPMENTS THIS WEEK AND IMPLICATIONS FOR RATES OUTLOOK
• SHORT-TERM OUTLOOK (ONE WEEK – ONE MONTH)
• MEDIUM-TERM OUTLOOK (SEVERAL MONTHS – ONE YEAR)
• Risk scenarios
• (2) Envisaged timetable for BOJ JGB-buying operations
• BOJ bond purchases in June (outstanding JGB holdings)
• (3) Yen rates relative value and investment strategies
• INVESTMENT STRATEGIES
• RELATIVE VALUE SCORE TABLES

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