USDJPY and US-Japan rate spreads - a regime shift?
The JGB's will bear watching over the next days and weeks as we must determine whether the volatility touched off by Kuroda's big move will only see a one off adjustment in the near term until things calm or whether JGB's will continue to suffer a rout. In the latter event, this would likely mean that Japanese yields and the JPY would move in the opposite direction - as they have been recently, but certainly didn't in the past. In such a regime, the JGB's are a confirming indicator suggesting whether investors feel comfortable holding the JPY-denominated government paper. Equities are certainly another story for now.
Yields have risen the most relative to their recent history in the "belly" of the Japanese yield curve at 2-5 years. The volatility has been even greater at the long end of the curve, but yields there are still considerably lower than they were before the advent of Abenomics as the market heavily anticipated the BoJ moving out the yield curve.
Chart: USDJPY vs. 5-year spreads - longer term
Chart: USDJPY vs. 5-year spreads - shorter term
Note the disconnect from the day that Kuroda managed to exceed market expectations .
Chart: 5-year JGB benchmark (chart courtesy of Bloomberg)
For perspective on the size of the recent move in the 5-year JGB yield relative to recent ranges - of course, we're still only at 25 bps - need 50-60 bps before this gets a bit more interesting in absolute terms (and in terms of the interest cost for Japan's government).