What’s behind the surge in JGB yields?

The jump in the yields of Japanese government bonds (JGBs) in the last few days probably reflects a confluence of many factors, including speculation that domestic institutions are set to step up their diversification into foreign bonds and local equities, rising yields in overseas markets, the correction of an earlier undershoot, and hopes that attempts to end deflation might actually work. Further sharp increases in borrowing costs could undermine “Abenomics”, but we expect yields to remain low.