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Opposing forces

The bank of Japan has left rates unchanged and has announced further relaxation of the yield curve control policy. As expected, the yield of the 10 year JGB has climbed to almost 1%. On March of this year, it was yielding 0.20%. In other words it has increased 5X in 7 months. The JPY has weakened again beyond 150 against the dollar. This yield increase put upward pressure to the U.S. 10 year bond yield that will be arbitraged against the JGB. Inflation and relative rates through their foreign exchange is the transition mechanism. Meanwhile, inflation in Europe has decreased to its lowest reading in 2 years, and the conflict in Gaza may be escalating to a new level. Powerful opposed forces are in action now. Government yields have broken up to and upward trend, and it’s not clear where they have the next resistance.

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