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According to Jane Foley, Senior FX Strategist at Rabobank, the rise in long dated JGBs throws the focus back on Japan’s large insurers as at some level super long dated yields would likely be sufficiently attractive to create a repatriation of funds and a boost to the JPY.  

Key Quotes

“It is commonly assumed that any large Japanese insurers would first need to see a more substantial tapering in BoJ bond purchases before making a significant change in asset allocation in favour of domestic Japanese debt.   However, a move close to the 1.0% level on the 30 year JGB has raised the market’s interest.   The last time this level was traded was January 2016 – a time when the BoJ was boosting policy stimulus.”

“In its regular press report the Ministry of Finance last week showed that that Japan’s appetite for overseas assets remained firm in September. Life insurers boosted their holdings of both foreign equity and debt. Banks were also buyers of overseas bonds.   The implication is that as yet the movement in JGB yields is not having an impact on the behaviour of Japanese investors, though the October 31 BoJ policy meeting will be watched closely.”

“The JPY has traded firmer in recent sessions vs. the USD in respect of the sour tone in global stock markets. The trend higher in USD/JPY since March reflects the strength of the USD which has been based in the attraction of the US growth story and interest rate differentials.   We remain USD bulls and see scope for USD/JPY to edge moderately higher into the middle of next year.   We expect USD/JPY to end the year close to current levels.”