One way to better understand the impact of BoJ YCC exit on Japanese demand for US Treasuries is to look at how much of the recent increase in US long-term interest rates has happened during Tokyo trading hours.
The chart below shows that since the BoJ YCC exit surprise in late July, the move higher in 10s has occurred almost entirely during New York trading hours.
This suggests that US rates are not driven higher by Japanese investors during Tokyo trading hours. And hence, BoJ YCC exit doesn’t seem to be the reason long rates have increased over the past month.
Instead, likely drivers of US rates over the past month are the US sovereign downgrade, fewer dollars for China to recycle in a falling exports environment, Fed QT, the significant budget deficit, the large stock of T-bills, and the Treasury’s intention to increase coupon auction sizes.
Source: Bloomberg, Apollo Chief Economist. Note: Tokyo trading session defined as 9 am to 4:30 pm JST, followed by London defined as 8:30 am to 1 pm GMT, and New York defined as 8 am to 4:30 pm EST, covering 20.5 hours in total of 10-year Treasury trading.
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