Japan's markets breaking free from policy surprises

The JGB market has been relatively calm compared with the volatility in overseas rates markets, as well as the big advances in the Nikkei (to a 15y high) and USDJPY (to a 13y high) - the so-called Japan macro trades. This marks a sharp contrast with Q1, when the JGB market was volatile amid stability in other markets.

During this period, the Japan macro trades overall have broken free from policy surprises linked to Abenomics. It has been a difficult three months for the Abe administration. The PM has focused on security and diplomacy rather than economic policy. The administration's approval ratings have fallen, and expectations for further BoJ easing have been dampened amid criticism of JPY depreciation. Even so, Japanese share prices and the USDJPY have continued to rise.

Barclays states, rather than policy surprises, the market has moved in response to: 

• 1) the start of an upturn in wages following the "shunto" spring wage negotiations and the firm tone of consumption based on the UTokyo/Hitotsubashi price indices
  
  
• 2) domestic investment trust flows, life insurer flows, and fund flows evident in corporate M&A activity