According to Morgan Stanley’s rate strategists on May 18, the Japanese 10-year government bond yield, currently at 2.74% per London Stock Exchange Group data, is expected to decline to 2.1% by the fourth quarter of 2026 as market focus shifts from inflation to economic growth. The strategists stated that current market pricing implies a more hawkish Bank of Japan policy path than their subjective probability-weighted forecast, suggesting substantial inflation risk premium priced in. “We expect this premium to fade by Q4 2026, pulling the 10-year yield down to 2.10%, before it gradually rises to 2.30% by Q4 2027 as oil prices stabilize and the BoJ resumes rate hikes.”
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