OSE Derivatives

Foreign investors continue to sell government bonds. According to the Ministry of Finance's 4th announcement of outward and inward securities trading and other data, foreign investors put 172.7 billion yen in domestic medium- and long-term bonds in net short positions from October 23rd to 29th. Net short position has been 6 weeks in a row since mid-September. It broke the record for the longest net short position since January 2014, when comparisons were available. The cumulative net short positions exceeded 6 trillion yen, which is comparable to the amount recorded in a two-week period in June, the last time foreign selling pressure intensified.

The BOJ held the BOJ Monetary Policy Meeting from October 27th to 28th. "There was a persistent belief that the BOJ would modify its current monetary easing policy" (SMBC Nikko Securities, Appointed Interest Rate Strategist) among foreign investors. A modification of monetary easing will exert downward pressure on government bond prices. This accelerated the selling of government bonds before the meeting. The net short position itself shrank to about 10% of the size of the previous week. It is believed that some investors moved to buy back JGBs after the BOJ meeting.

However, selling pressure on government bonds remains strong. On 4th, the yield on the 10-year JGB briefly hit 0.25%, rising (and prices falling) to the yield capped by the BOJ in its short- and long-term interest rates operation (YCC=Yield Curve Control).

The Fed (Federal Reserve) has reiterated its stance to continue rapid monetary tightening and upward pressure on overseas interest rates has also been a factor in raising domestic interest rates. On November 2, Fed Chairperson Powell indicated that the person expects the final policy rate to be higher than previously assumed.

The current weak yen is causing strong inflationary pressure, and with less than six months to go before the expiration of BOJ Governor Haruhiko Kuroda's term of office, the view is that the market is "There could be more investors to put on the YCC fix in the future" (JPMorgan Securities, Fixed Income research director).