Assumption of higher JGB yields weighs on the Yen – Commerzbank

Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, analyzes JGB's attractiveness and Yen's weakness.

Uncertainty about how the BoJ intends to control the yields going forward

The fact that the Yen is experiencing another period of weakness, first of all, reflects the uncertainty about how the BoJ intends to control the yields going forward. And also something quite trivial: high yields only make JGBs attractive if one can assume that they do not rise further. 

At present it seems quite possible that the adjustment of the ceiling in December and the vague wording last Friday constitute two steps in a painfully slow process, which will end in much higher yields. Perhaps it is even the beginning of the end of the yield curve control. At that point, global investors might want to avoid JGBs. From my point of view that is one of the reasons for the current JPY weakness.