BOJ Policy Gap Sends Shockwaves Through Global Markets

The recent Japanese yen intervention saga has set off a chain reaction in interest rate markets. According to think.ing.com, prior JPY weakness is a result of tension stemming from an ultra-cautious Bank of Japan and a policy rate that remains too low.

According to updated calculations, the Japanese policy rate today is 50bp below neutrality as measured from their estimate of the interest rate buffer vis-à-vis the Federal Reserve. This discrepancy has led to extremely weak yen and elevated long-dated Japanese government bond yields, with the 30yr yield in the 4% range.