Do JGB yields contain useful information?
In these dog days of summer, excitement is found in extraordinary places. Three interventions by the Bank of Japan in the government bond market last week lifted expectations of a policy shift at this week's monetary policy meeting, but this was not delivered. Instaed, Governor Kuroda announced a technical change whereby the acceptable range of movement of 10-year JGB yields was widened to 20 basis points either side of zero. Also, the BoJ will buy a greater proportion of ETFs that track the Topix index (from ¥ 2.7 to ¥ 4.2 trillion per year). The undergriding message was that the central bank intends to suppress short and long-term interest rates for a long time, despite its negative impact on bank profits. No tightening here.
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