The Japanese bond market seems to be asleep for now. However, we are still above the 200-days moving average in what appears to be a classic continuation figure: trouble ahead for the Boj?
Target 99.30 has been reached and exceeded. Now there are some very interesting perspectives considering the excellent seasonality of August for Jpy. Stay short next target 94.00.
The answer is simple: Because an inflation target of 2% does not mean that short-rates will instantaneously jump to 2% and with that push up long-term rates, too. You can already see lots of selling in JGBs by pension funds, banks, and other long-term JGB investors. Most of the proceeds are invested in foreign bonds but one can also witness a pickup in Japanese investments in real-estate and take over activity overseas. Once the usual suspects of JGB holdings have sufficiently diversified those same players will feel a lot more relaxed about the threat of inflation pickup in the future. The one holding the bag is BOJ and higher funding costs for Japan but Japanese politicians, economists and other self-proclaimed experts hold steadfastly to the erroneous belief that Japan can fund it self entirely domestically. The panic will set in when inflation really picks up and if/when it turns out that the big gamble by the BOJ will not play out, which is that growth in income and gdp will overshadow the higher funding costs that Japan will face with higher inflation. I am in the belief that Kyle Bass is spot on with his analysis but timing like always is everything.
Things you do to increase inflation: http://www.japantoday.com/category/...p-growth-could-slow-to-1-after-sales-tax-hike
An article on this subject: http://www.zerohedge.com/news/2013-08-08/bnp-warns-japanese-bonds-have-lost-their-ability-price-risk
Not very exciting news for the Japanese economy : http://www.reuters.com/article/2013/08/12/markets-forex-idUSL4N0GC0N820130812 Another devaluation of Jpy will be necessary.