Will BOJ listen to the investors?

Will BOJ listen to the investors?

Japanese government debt appreciated in price on Friday following the take-off of bonds in the US debt market, part of the optimism came from the stock market, where Nikkei grew for the second day.
The rally became a sign of approval of the government’s decision to leave the current head of the Central Bank of Haruhiko Kuroda in office, supplementing the leadership with several more “dovish” politicians. Masatsumi Vakatabe, an academician economist and well-known supporter of quantitative easing, will shape the policy together with Kuroda, and the monetary strategy will likely continue to accompany expansion stock and debt market of Japan. The development of regulatory measures will also involve a veteran of the financial market Masayoshi Amamiya, who is considered market-friendly political figure.

The yield of ten-year JGB fell by 0.5 points to 0.055%, bonds with maturity in forty years began to yield one base point less at the level of 0.915%. In the short term, the Central Bank made it clear to the markets that the policy of massive quantitative easing will stay in place, as an integral component of Abenomics, a plan for economic recovery.
The TOPIX index added 1.1% to the level of 1,738.72, almost all the components of the sector closed the session in positive territory. Shares in the utilities, food and pharmaceutical sectors responded positively to the growth trend in domestic demand.

US Treasury bonds with a maturity of 10 years retain a yield of 2.9%. The stock market has resigned itself to the imminent rise in the cost of borrowing and has replaced the grounds for optimism from the Federal Reserve’s credit support to economic growth, and thus a sound asset growth. The dollar declined due to the resumption of investors’ search for assets with higher yields, as the risks of continuing correction were quickly suppressed, and the global change of mood to bearish in the midst of a global economic recovery is basically ruled out. EUR/USD broke the 1.25 mark, USD/JPY broke support at 106.00, the lowest since November 2016. Before further decline, the pair is likely to recover to 106.50-107.00. Judging by the confidence of investors, the Bank of Japan should soon succumb to the temptation to limit stimulus to reduce the yield differential and suppress capital outflow from the country. The growth of orders from abroad for Japanese products will compensate for the decline in profits due to the revaluation of the Yen, making the case for raising rates by the bank of Japan is quite likely.

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