Halister News

(Bloomberg) -- Short-term JPY rates can fall again and lower uncertainty over intermediate rate will migrate into higher FX and stock volatility, Goldman Sachs strategist Francesco Garzarelli writes in client note.

• Front end of the yield curve is attractive to play from the long side as policy rates will likely be lowered to fend off undesired currency appreciation
• Expect lower volatility in nominal Japanese intermediate rates as the central bank manages its market purchases of JGBs more flexibly
• Slope of the long end of the yield curve will be constrained by the peg on 10-year rates
  • 10s30s JGB should hold inside 70bps to 80bps –- levels last seen when 10-year rates were at 30bps
• Re-calibration of BOJ policy could spur easier domestic financial conditions by reducing volatility in target long rates and preventing excessive flattening of the yield curve
  • This should promote higher inflation over time, and in turn help depress ex-ante real rates and weaken the currency