BOJ Hawkish Pivot Drives Volatility Across Global Rates
Japanese government bonds (JGBs) firmed Monday after a crucial auction of 10-year debt drew stronger than usual demand, easing fears that the recent spike in yields would deter buyers.
- Bid to cover: 3.59 vs. 2.97 previously
- Above 12-month average: 3.20
The auction was watched closely after BOJ Governor Kazuo Ueda delivered his clearest indication yet that a rate hike is back on the table, sending yields sharply higher earlier in the week.
Markets now assign an 80% probability of a BOJ hike this month and more than 90% by January a staggering shift from just 36% a week ago.
Rising JGB yields matter beyond Japan: as they climb, they can pull global long end yields higher, tightening financial conditions at a time when many governments face already stretched fiscal positions.
The yen eased slightly after Monday’s jump, though volatility is expected to remain elevated as Japan prepares another major test: a 30-year bond auction on Thursday.
Fed: Dated Inflation Before a Crucial Decision
In the US, Monday’s report showed factory activity contracted in November at the fastest pace in four months, highlighting softer demand ahead of the Fed’s next move.
Policymakers will receive a dated reading of their preferred inflation gauge on Friday a consequence of the earlier data blackout but the true debate at next week’s FOMC meeting is expected to center on the labor market, not prices.
This week’s key US indicators include:
- ADP private payrolls (Nov)
- Preliminary consumer confidence (Dec)
- Delayed PCE inflation report (Fri)
Markets still overwhelmingly expect a December rate cut, with investors assuming the Fed will continue its easing cycle into early 2026.
Risk Environment: Still Supportive, but More Uneven
Even with central bank uncertainty and crypto driven volatility, the broader macro backdrop remains supportive for risk taking, helped by:
- The Fed’s shift toward easing
- Fiscal stances in major economies that are more growth friendly than anticipated
Still, traders should expect choppier intraday moves as global bonds adjust to Japan’s hawkish pivot and US data trickles in with major delays.
Markets are entering a high volatility stretch, driven by:
BOJ’s accelerating path toward tightening
Dated US inflation data just days before the FOMC
A softer US industrial backdrop
A crypto led risk off wave
For traders, the next 48 – 72 hours are key. The direction of global yields and by extension FX and risk assets will hinge on Japanese auctions, US labor indicators, and Friday’s inflation release. This is a critical period to stay data-dependent and avoid premature positioning ahead of major central bank decisions.
Disclaimer: This report is for informational purposes only. It does not constitute investment advice or represent the official views of any central bank or regulatory body.