Matsuzawa Morning Report

Research evidence excerpt

Matsuzawa Morning Report

Global Markets Research

18 August 2026

Macro Strategy - Japan

Will 10yr JGB yields stop rising at 3.00%?

Revision of Fed policy rate forecasts is only halfway complete

Research Analysts

Strategy

Naka Matsuzawa - NSC

- Although 30yr UST yields reached a new high for this period, this does not markedly

reflect the risk of policy errors.

- The normalization of the US monetary policy outlook is still a work in progress, and rate

cut expectations are finally beginning to fade. This brings the market to a phase of

questioning the validity of the projected terminal rate.

- There are not many domestic factors that could push up expectations for Japanese

monetary policy further, but there are also few tools available to stop a rise driven by

overseas markets.

Today's Japanese markets

In Japanese markets on Tuesday, this author expects bonds and equities to weaken (in

overnight futures trading, bonds and equities were down 21 sen and JPY320, respectively,

over OSE). In overseas markets on Monday, long-term yields continued to rise, hurting the

market's risk sentiment. The decline in US bonds was driven by super-longs. Real yields

and inflation expectations both rose. Rate hike expectations rose slightly, with the market

pricing in a 55% probability of an October hike. In the US stock market, consumer

spending-related names were weak due to higher oil prices and yields. The tech sector

was mixed, semiconductor stocks were solid, and MAG7 and software stocks were soft. In

the FX market, USD was soft, but recovered in response to higher US yields. JPY was

weak, falling against both USD and cross currencies.

Over the past two days, bonds and equities have weakened globally (with steepening

along the bond market's yield curve), raising awareness of “bad” yield increases. That

said, it will likely take more time before policymakers recognize this and move to correct it.

The 30yr UST yield is attracting attention after reaching levels not seen in 19 years, but

the yield curve and swap spreads do not seem to significantly reflect the risk of policy

errors such as excessive fiscal expansion or behind-the-curve concerns (Figure 1). In the

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