OCBC Says Weaker Yen and Rising Japanese Bond Yields May Trigger Global Volatility

Japan could remain a potential source of global market volatility as the yen continues to weaken and long-term Japanese government bond yields rise, OCBC strategists said. According to Jin10, the strategists said the market view that the Bank of Japan is behind the curve is adding to depreciation pressure on the yen. They said investors may increasingly see future rate hikes as being driven more by the policy direction of a Sanae Takaichi-led Japanese government than by economic data alone. OCBC said further yen depreciation could weigh on regional currencies, especially the South Korean won and the Thai baht. However, the bank said the larger spillover risk lies in rising long-term Japanese government bond yields. The strategists said this may already be pushing up U.S., U.K., and German government bond yields. They added that if Japanese bond yields keep climbing, global yields could be driven higher.