Short-term JGB yields shoot higher as traders scramble to price in next BOJ rate hike

2-year JGB yields have now jumped up to 0.91% – its highest since 2008. Meanwhile, 5-year JGB yields have also shot higher to 1.20% – also its highest since 2008. This follows from the BOJ decision earlier, in which we saw policymakers Takata and Tamura dissented in favour of a 25 bps rate hike.

The overall decision was still a 7-2 majority in holding rates unchanged. However, is the dial starting to shift within the BOJ for their upcoming decisions?

Before today, a rate hike before the end of the year seems improbable for the BOJ. That especially as the US-Japan trade deal put a roadblock in front of the central bank’s plans. The tariffs situation and the relative uncertainty is still one that the BOJ had previously reaffirmed in warranting a more cautious approach.

It’s very rare to see BOJ policymakers break ranks like they did today. So, the question now is whether there is stronger feelings among the board in actually leaning towards a rate hike before next year? And if so, is today’s push by Takata and Tamura enough to persuade others to join them in October or December?

Right now, traders are pricing ~47% odds of a 25 bps rate hike for October. And by December, there is roughly ~18 bps of rate hikes baked in. All of a sudden, the upcoming meetings look to be “live” ones. And that is keeping the yen firmer in the aftermath of the decision earlier.

We’ll now have to wait on BOJ governor Ueda’s press conference later to provide more clarity into their line of thinking. That will help to either shore up market odds and/or dissuade any overeager pricing.

This article was written by Justin Low at investinglive.com.