Friday Rates Update
BofA highlights the major long-end steepening in JGBs following the BoJ meeting and discusses the implications of the Feb 8th election on fiscal policy, JGB yields, curve, and JPY.
What the desk is arguing
BofA's podcast discusses the significant steepening at the long end of the JGB curve following the BoJ meeting, and explores how the upcoming Feb 8th election could impact Japanese fiscal policy, potentially leading to further upward pressure on long-end yields and a steeper curve, with spillover effects on JPY.
Where it sits in our coverage
We have no internal coverage data on JPY. Our consensus view is neutral, with no specific targets or spread.
How other firms see it
No other firms cited in the source. Other major banks have generally noted BoJ's gradual normalization but differ on the pace; for example, Goldman Sachs (gs) expects a slower adjustment, while Morgan Stanley (ms) sees risks of more aggressive tightening.
Key takeaways
- 01BofA highlights major long-end JGB steepening post-BoJ meeting.
- 02Feb 8th election introduces fiscal policy uncertainty, risks for JGB yields and curve.
- 03JPY may face depreciation pressure if fiscal expansion adds to yield curve steepening.
Market implications
Long-end JGBs may continue to steepen if election results point to fiscal expansion, potentially pushing 10-year yields higher and weighing on JPY. The BoJ's stance and election outcome are key near-term drivers.
Risks to this view
Upside risk to JGB yields if fiscal stimulus is larger than expected; downside risk if BoJ intervenes to cap yields. JPY could strengthen if fiscal responsibility leads to tighter policy, or weaken if stimulus fuels inflation expectations.
Please join Sphia Salim for a discussion with Takayasu Kudo and Shusuke Yamada on Japanese developments this week, including the major long-end steepening. We will review the BoJ meeting, explore what the Feb 8th election, announced this week, could mean for Japanese fiscal policy and thereby the risks it presents for JGB yields, the curve and JPY. You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life. "Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation.
Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. ©2026 Bank of America Corporation. All rights reserved.
Sources & References
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