Japan’s plan

It looks like Japan’s plan it’s working. After securing the snap elections a few weeks ago, to take full control of the government, investors seems to have cleared the uncertainty regarding who is in charge, andaré looking at Japanese bonds with a fresh look. In the chart below, you can see the open interest of 20 year JGBs futures. As Japan has opened the floodgates of price discovery in its long end of the curve, and international investors are taking the bait. When hedged back to USD or Euros, Japanese bonds offer a very attractive return, with duration and liquidity aligned with investors returns objectives (or matching liabilities). The Yen keeps falling but continues to be below the 160 level that triggers BoJ intervention, as you can see see in the bottom chart. Reasons to reverse the Yen carry trade continue to pile up. If that wasn’t enough, Japan’s equity market is also on fire, up 31% over the last 12 months when measured in USD. Non US markets control outshine the US.

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