Japan's Bond 'Falling Knife' Cuts Repatriation Rush

The repatriation of Japanese capital from abroad has begun, but it's being held back by uncertainty over where Japanese bond yields will peak and how much further the central bank must raise interest rates. The Bank of Japan's rate hike last week and pledges to tackle inflation have likely warded off another wave of speculative bets against the currency.

However, major investors remain reluctant to commit heavily to domestic bonds while yields are still climbing and policymakers offer few clues about how much further rates must rise. Two dovish dissenting votes at last week's meeting and a further selloff in bonds this week have only reinforced the uncertainty.

The yen has given up most of its sharp gains from early September and traded near 159 per dollar on Friday, not far from the 157 level, which is the median six-month projection of analysts polled by Reuters earlier this month. The move leaves the yen down only about 1% for the year.