-BoJ policy innovations long overdue and will persist
because they must. Balance sheet expansion points to
further yen weakness.
-Larger than expected duration grab has economic effects
consistent with the bull flattening across global bond
markets, but is not behind that lurch for yield.
-Cross border portfolio substitution effects look to be a
more compelling rationale. That was fuelled by downside
surprise to economic data.
-BoJ innovations will not push rates to new lows. Stock
effect now priced in, flow effect highly uncertain, and BoJ
purchases of long term debt still low relative to the Fed.
-BoJ policies do not alter our September/November
timeline for when the Fed tapers QE purchases. The BoJ
facilitates rather than hinders that eventual exit.
-Chatter on rates has clearly turned more bullish. At these
levels we are not bullish. BoJ moves may keep long term
rates modestly lower than they would have been, but
growth and the Fed to keep rates tilted higher over the
medium to long term.
