Nomura senses strong BOJ policy shift as rate hike expectations build

Despite the Bank of Japan’s (BOJ) policymakers insisting on maintaining the monetary policy ultra-easy, Takenobu Nakashima, Chief Rates Strategist at Nomura Securities, said that markets could be in for a surprise rate hike announcement from the BOJ.

Key quotes

“Wariness continues to linger in markets about the BOJ doing some sort of policy tweak -- not just widening the band to allow for 10-year yields to move.”

“Speculation for a policy shift is particularly strong among foreign investors.”

“Traders likely remember that BOJ Governor Haruhiko Kuroda suddenly introduced a negative rate policy in 2016, despite having denied such a move was a possibility at the time.”

Meanwhile, the two-year forward overnight index swaps climbed to a high of 0.19% -- a gap of about 20 basis points above the current rate -- a sign of increased speculation that a shift in policy lies ahead, per Bloomberg.