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Analysts at Rabobank suggest that the BOJ is doing their bit to boost volatility as they are fairly happy with the economic situation, with plentiful jobs, unhappy with the wages situation as there are still no pay rises, and very unhappy with the matching lack of inflation.

Key Quotes

“Given they are also not exactly thrilled with a flat yield curve that is hurting banks, and with themselves rapidly becoming the sole owners of the entire JGB market, as well as a fair slice of the equity market, on Friday it was suggested they would be reviewing their Yield Curve Control (YCC) pledge to keep 10-year yields around zero (meaning up to 10bp).”

“Before you could translate “Debt coming due and we are raising rates? Really?“ into Japanese, JGBs were being smashed and JPY was turning from 113 back towards 111. As a result  the BOJ is already being forced to backtrack, once again announcing unlimited bond buying of 10-year JGBs.”

In short, they are on a smooth and rapid  shinkansen  towards quasi-monetisation of one of the world’s largest bond markets – and yet attempts to get off means the light at the end of the tunnel is another bullet train coming straight towards them.”