Buying of bonds gained momentum after the sudden drop in the Nikkei. Some investors are saying consumer prices won't rise as much as the central bank expects.
People are snapping up medium-term debt on bets the BOJ will take its time raising rates after a shift in policy.
Bond yields will have a bias to rise toward the end of the year. Concerns about oil and the hurricane have eased, spurring some selling in bonds.
Bonds are reacting to the drop in stocks. The machinery orders report is another plus.
The central bank won't raise rates until the year starting April 2007.
We've already anticipated the increase in consumer prices. It is not a reason to sell bonds any more.
The drop in stocks is taking the weight off bonds. The decline of the past couple of months has been overdone.
The fourth month of gains in core prices could certainly push the central bank a step further toward raising interest rates. Debt maturing in five-years or less will remain weak.
Yields are close to their highs, and so bonds look attractive. Yields already reflect speculation that an end to the policy will come in the second quarter of next year at the earliest. Any signs of a weak economy or government opposition to changing policy may trim those bets.
Speculation of a policy shift grew over time and pushed up bond yields. The economic recovery was strong and the stock rally continued, keeping an upward bias on yields.
