JGB yields following a downward trend, but…

Rise in volatility due to low liquidity is becoming a risk for the JGB market. As long as central banks are buying government bonds in large quantities, yields will probably be vulnerable to downward pressure, and if the BOJ's JGB buying operations stay at their brisk pace,the 10yr JGB yield is expected to drop back to the 0.195% level reached in January this year.

It is likely to be harder for the BOJ to find JGB sellers to maintain QQE. Attention now turns toward the trend in JGB selling by the other public funds as they follow the GPIF's lead in changing their portfolio, but any move cant be seen yet.

However, investors will inevitably become more cautious, since a sharp rise in volatility is well within the realm of possibility, says Bank of America.