Japan's money markets gird for end of negative rates
By Junko Fujita and Tom Westbrook
TOKYO/SINGAPORE (Reuters) — Speculators betting on a historic monetary policy shift in Japan expect money markets will be upended by potential new deposit rules and are crowding into bets against short-dated bonds.
Yields on one-year Japanese treasury bills, which went sideways through 2023, are up a relatively sharp eight basis points in 2024 to a near almost decade high of 0.067%, under pressure from short-sellers. Six-month yields, negative for eight years, leapt above zero last week.
The positioning is a bet that the Bank of Japan overhauls a tiered deposit programme that charges financial institutions a discouraging -0.1% rate on excess reserves, and replaces it with a positive overnight rate. Investors assume banks will rush to dump short-dated paper and keep excess cash at the BOJ.
«The demand/supply situation on the short-end JGB (would) dramatically change,» said Keita Matsumoto, head of financial institution sales and solutions at Citigroup Global Markets Japan.
Under its yield curve control (YCC) policy, the BOJ guides short-term interest rates around -0.1% and has gradually eased its grip on the 10-year bond yield with a current soft cap at 1%.
While investors have for months speculated the BOJ will tighten policy, this time they expect it will lift overnight rates to zero or just above zero, rather than changing settings for longer term yields.
The BOJ's negative rate framework penalises financial firms for parking excess reserves with the central bank. Their balances are split into three tiers, with required reserves earning 0.1% and excess balances getting zero interest or a negative 0.1%.
Total reserve balances at the BOJ were roughly 536.75 trillion yen ($3.63 trillion)
Read more on investing.com
