As other central banks have tightened monetary policy, the Japanese central bank has been an outlier. Investors are now betting that it will be forced to change tack.
For decades, professional investors have been enticed by what has to be the most seductive of all trades – betting that Japanese bonds would fall in price.
Still, the BoJ won’t be celebrating. It was hoping to see inflation rise as a result of stronger wage growth, higher investment and more robust consumer spending.inflation largely reflects rising costs for energy, food and other commodities. As the difference between US and Japanese long-term bond yields continues to widen, investors are dumping Japanese-denominated assets.As a result, the Japanese currency this week dropped to its lowest level in more than two decades against the US dollar, while the yield on 10-year Japanese bonds climbed above the BoJ’s target range.
What’s more, Japanese households are feeling the squeeze from rising food prices, given that wage growth remains weak.