Japan Rates Strategy: Fading Inflation Risk But Chasing Fiscal Risk

The report highlights a growing fiscal risk premium in long-end JGBs amid fading inflation concerns. Strategists recommend long positions in 5y JGBs while maintaining steepeners on the curve to navigate expected summer seasonality.

Key Takeaways

• 1.Fiscal risk premium is re-emerging at the super-long end of the JGB curve, while inflation risk premium in the belly appears excessive.
• 2.BoJ monetary policy expectations are being adjusted as the market monitors the government's influence on the central bank's rate hike ambitions.

Table of Contents

• Key Takeaways
• Interest Rate Strategy
• Renewed fiscal risk premium emerged
• Markets focusing on the risk of the BoJ falling 'behind the curve'
• Seasonality supports our positioning
• Valuation Methodology and Risks
• Global Macro Strategy Team
• Disclosure Section

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