Bankโ of Japan Faces Pressure as Long-term Interest Rates Approach 2%
TOKYO, December 11,โ 2023 – The Bank โof japan (BOJ) is navigating a delicate situation as long-term interest rates creep towards the โ2% threshold, possibly triggering โขselling from market participants holding unrealized losses. Experts warn theโ central bank must carefullyโ calibrateโ its policy response, particularly โฃas rates climbโ with โno โฃclear turning pointโค anticipated โคbefore reaching around 2.5%.
The approaching 2% โคlevel is significant because exceeding itโ could โฃinitiate a wave of sellingโค by investors who have previously absorbed losses,โข potentially escalating into further declines in Japanese government bond values if concerns โขabout a credit downgrade surface.โค A rise inโ expectations forโฃ the โterminal โrate generally leads to yield curve steepening, contrasting with flattening pressures. This comes as the BOJ prepares for its โขDecember meeting, where Governor Ueda โขis expectedโ to outline theโฃ future path of โขinterest rate โฃhikes โฃand clarify the levelโข of the neutral interest rate.
Analysts โขnote โฃthat a rise in the terminal rate expectation often results in a steepeningโ of theโ yield curve, rather than the flattening typically observed. Once the 1.95% mark is โsurpassed, market participants with unrealizedโฃ losses may beginโข to offload holdings. The BOJ’s policy decisions will be โขcrucial โขin managing market expectations and preventing destabilizing shifts โคin bond yields.
