Brendan Murphy is shorting 10-year Japanese government bond (JP10Y) futures on a bet that it’s only a matter of time before the Bank of Japan tightens monetary policy.
Murphy, a money manager at Insight Investment, which oversees more than $880 billion in assets, is bearish on those JGBs whose yields are capped by the Bank of Japan’s rigidly dovish policy as price pressures mount. He’s bullish on 30-year Japanese debt, which is not controlled by the BOJ.
10-year JGB yields climbed to a 0.485% on Friday, the highest since March 10.
“We do think that you see yield curve control lifted,” Murphy said in an interview last week. “They’re going to move incrementally toward normalization,” he said, adding that the BOJ “don’t want to be accused of tightening too quickly and going back into a disinflationary environment.”
10-year JGB yields climbed to a near-three month high of 0.48% on Friday. Similar ‘tenured’ bond futures fell to a four-month low.
Former BOJ official Hideo Hayakawa said the central bank will probably loosen its grip on yields this month. “Inflation is elevated,” Murphy said. The BOJ may tighten “not necessarily in the next month but in the next two quarters.”
Bond bears are likely to gain more confidence from a report that BOJ officials will likely raise their inflation forecast above 2% for this fiscal year at their July meeting.
The current yield differential of Japan compared to the other major bonds shows a slight lag developing on the yield with the Canadian 10Y bond.
JP10Y-CN10Y -2.186
JP10Y-DE10Y -1.890%
JP10Y-US10Y -3.313%
JP10Y-AU10Y -3.461%
JP10Y-GB10Y -3.873%
JP10Y-CA10Y -2.905%
