The Japanese treasury bond bond market fluctuated sharply this week, with the yield of 10-year treasury bond exceeding 1.578%, a new high since 2008. At the same time, the yield of 20-year and 30-year treasury bond rose to 16 year and 18 year highs, respectively, and the market's expectations of Japan's interest rate prospects changed significantly.

Although market expectations for higher interest rates in Japan have increased, Bank of Japan Governor Kazuo Ueda stated in his parliamentary defense that the rise in yields is in line with market expectations and has not deviated from the central bank's policy direction, and that intervention is not considered in the short term.

The main driving factor for long-term yields is the market's expectations of short-term interest rate prospects. It is natural for yields to fluctuate due to these expectations. "- Kazuo Ueda, Governor of the Bank of Japan

This statement means that even if the yield of Japanese treasury bond bonds continues to rise, the Bank of Japan will not take radical measures, and the pace of policy tightening will still be cautiously promoted.

The Japanese yen still faces depreciation pressure, and the market is paying attention to the 150 mark

Although the yield of Japanese treasury bond rose, the dollar remained low against the yen, indicating that the market was still not optimistic about the Bank of Japan's tightening efforts.

The main reason is that the interest rate differential between the United States and Japan is still large, and Japan's pace of interest rate hikes is slow. Although the Bank of Japan has ended negative interest rates and may further raise interest rates, its pace still lags far behind that of the Federal Reserve.

Currently, US interest rates remain around 4.2%, much higher than Japan's 0.5%. The latest US employment and inflation data are strong, and the market expects that the Federal Reserve may postpone interest rate cuts until the second half of the year, which will further widen the US Japan interest rate differential and suppress the Japanese yen exchange rate.

The depreciation of the yen has led to an increase in the prices of imported goods in Japan, exacerbating inflationary pressures and further widening the trade deficit, which is not conducive to the long-term strength of the yen.

Market expectation: Japanese yen may continue to test at 150 level

At present, the market is focusing on the key psychological barrier of 150 yen against the US dollar. If the Bank of Japan does not take additional measures, investors may continue to push for the depreciation of the yen.

Short term: The Japanese yen may continue to fluctuate within the range of 148-152, and if the Bank of Japan's wording becomes more aggressive, it may briefly boost the yen.

Mid term: If the Bank of Japan further raises interest rates, the yen may rebound slightly, but if the Federal Reserve maintains high interest rates, the yen will still be difficult to break through 145.

Long term: If the global economy slows down and the Federal Reserve initiates a rate cut cycle, the Japanese yen may experience a more significant appreciation, otherwise it will still be constrained by the US Japan interest rate differential.

On the whole, although the yield of Japanese treasury bond hit a new 16 year high, the Bank of Japan's cautious attitude may continue to suppress the yen, keeping it between 148 and 150, with limited rebound space in the short term.