Rates Strategy Weekly

Mizuho argues that the recent rise in Japanese interest rates driven by the Takaichi administration's policies has overshot economic fundamentals. The firm expects rates to stabilize and eventually decline as the BOJ pauses rate hikes next year.

Key Takeaways

• 1.Yen rates have priced in much of the reflationary policy impact, and equilibrium rates are likely below current levels.
• 2.The 10-year JGB yield may temporarily test or exceed 3% due to near-term momentum, but it is not expected to be a sustainable waypoint in a longer-term uptrend.
• 3.The BOJ is expected to terminal rate of 1.25% and discontinue rate hikes next year as inflation settles.

Table of Contents

• How far will rates rise? Two perspectives
• Magnitude of recent move in rates: How much more can be priced in?
• Summary and outlook
• DEVELOPMENTS THIS WEEK AND IMPLICATIONS FOR RATES OUTLOOK
• Risk scenarios
• Envisaged timetable for BOJ JGB-buying operations
• Yen rates relative value and investment strategies

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