Reviewing the final full trading week of 2022, Societe Generale analysts noted that forward markets are pricing in 30 basis points rate hikes by the Bank of Japan (BoJ) in 2023 following the policy tweak announced earlier in the week.

BoJ’s pivot is another bearish omen for bond market in January

"The announcement thrashed Bunds and did not leave Treasury yields unscathed, as investors consider the wider ramifications of higher JGB yields for the investment allocation of the Japanese pension and life insurance industry, among the world’s biggest buyers of fixed income securities."

"Having increased foreign investment mandates in recent years to enhance returns, domestic accounts may be inclined to repatriate some of their holdings to Japan, boosting overseas bond yields, inhibiting the flattening impulse from the hawkish Fed and ECB and lifting the JPY."

"The BoJ insisted the widening of the band does not mark a change in policy bias, but markets read it differently. Forwards now price 30bp of tightening by the central bank in 2023. Speculation of a wider ranging policy review has intensified for when Governor Kuroda steps down in March. The BoJ’s pivot is another bearish omen for the bond market in January when debt issuance traditionally speeds up. US primary dealers estimate a whopping $35-40bn could be issued by corporations in the first week of January alone."