Speculation that the BOJ will act ramped up on Monday after Nikkei, citing sources close to the matter, reported that policymakers may further tweak YCC to allow the 10-year Japanese Government Bond yield to rise above 1%.
The yen rallied strongly for a second straight session, the 10-year yield rose again to a fresh decade-high nudging 0.89%, and the benchmark Nikkei 225 stock index gave back all of Friday’s gains and slid 1%.
It is shaping up to be a year of two halves for Japanese stocks as the prospect of the BOJ abandoning its super-loose monetary policy becomes more likely. The Nikkei is down 3.6% this month, on track for its biggest monthly loss since December, and is down 8% so far in the second half of this year.
But it is still up 17% year-to-date thanks to a stunning 27% rally in the January-June period that saw it scale a 33-year high close to 34,000 points, as many investors bet that Japan Inc was back after years – decades – in the doldrums.
Negative interest rates, the BOJ accumulating 45% of all outstanding Japanese Government Bonds, and a 30% slide in the yen’s value against the dollar since early 2021 made Japanese stocks extremely attractive.
By real effective exchange rate measures, the yen is its weakest in over 50 years, luring foreign buyers in to snap up assets on the relative cheap.
