Morgan Stanley: Expect Japan's 10-year government bond yield to decline before the end of the year

Golden Finance News reported on May 18 that Morgan Stanley’s interest rate strategist, in a report, said that as market focus shifts from inflation to economic growth, the middle section of Japan’s government bond yield curve is expected to outperform other maturities. They expect the 10-year Japan government bond yield to fall to 2.1% by the fourth quarter of 2026; data from the London Stock Exchange Group shows the yield is currently 2.74%. The strategists believe that, due to a lack of domestic investor demand, the long end of the yield curve will continue to lag. They said that the policy path for the Bank of Japan implied by current market pricing is more hawkish than Morgan Stanley’s subjective probability-weighted policy path and survey-based forecasts, indicating a considerable inflation risk premium in the market. “We expect this premium to dissipate by the fourth quarter of 2026, bringing the 10-year Japan bond yield down to 2.10%. Then, as oil prices stabilize and the Bank of Japan restarts rate hikes, the yield will gradually rise, reaching 2.30% by the fourth quarter of 2027.”