Investors are on high alert for further policy tweaks from the Bank of Japan this week after December’s shock decision to raise the bar on yield movements failed to significantly improve market liquidity.

While almost all economists surveyed by Bloomberg expect no change at the two-day meeting finishing Wednesday as their main scenario, market pressure on the central bank’s stimulus framework has intensified since last month’s efforts to ease the side effects of policy.

Another increase in the ceiling for the 10-year yield is seen as the most likely course of action, should the BOJ act, given its recent emphasis on improving bond-market functioning. 

Eoin Treacy's view

10-year JGB yields are above the 50 basis point cap suggesting investors are willing to bet the BoJ will raise the rate at which they are willing to intervene.

Japan’s corporate sector has been accustomed to borrowing at progressively lower rates for decades. This is a big change. In one quarter, the global total of negative-yielding debt has shrunk to almost zero. Today only very short-dated debt, with maturities less than a year, have negative yields.   

The prospect of the Bank of Japan walking back its commitment to monetary accommodation is resulting in the Japanese stock market bucking the trend of recovery in the global markets. The Yen continues to strengthen and

The Topix 2nd Section Index has been discontinued which is unfortunate because it has historically been a useful lead indicator for the Japanese market. It is worth considering that the Index was underperforming the Nikkei heading into 2022 and the Topix Small Index currently shares the weak outlook exhibited by the Topix.

The Nikkei-225 is barely steady in the region of the 1000-day MA.