Rising Japanese government bond yields are poised to reshape global currency and rate markets next year, according to a note from RBC.
- Japanese yields now offering compelling returns
- means domestic investors are increasingly likely to keep money at home rather than chase higher returns abroad
- For the first time since 2020, Japanese investors will have yields attractive enough to invest at home
- RBC estimates that by the end of 2026, Japanese investors could secure 30 to 120 basis points of excess yield, depending on maturity
- shift has implications for FX flows, RBC projects Japan’s overnight rates will rise about 50 basis points by the end of next year, while US rates fall around 130 basis points
- if life insurers raise hedge ratios from 45% to 60%, the bank estimates it could trigger as much as US$173bn in flows back into JPY, bullish for the currency
This article was written by Eamonn Sheridan at investinglive.com.
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