Mecklai graph of the day: Is abenomics faltering?

Mecklai graph of the day: Is abenomics faltering?

The extreme volatility in bond market where yield on 10 year benchmark rose to 1 percent for the first time since April 2011 has led to massive selloff in Nikkei by more than 7 percent in today’s session. The BOJ Kuroda’s aggressive monetary and fiscal policy tools (Abenomics) used to buy bonds from the Japanese markets to inject liquidity and in turn reduce the 10 year bond yield has had an opposite effect on the markets in today’s session. The yields sharply rose for a brief time to about 1 percent and then came crashing down to around 0.82 percent by the ending of the session. The volatility in bond market has turned the investor sentiments sour leading to capital outflow from the Japanese Nikkei which stooped down to 14,483 from 5 ½ year high, the largest drop since March 2011. To buffer this market turbulence the BOJ started a 2 trillion Yen supplying operation to stabilize this market fiasco.

The 10 year yields reaching to a 1 percent high was due to the abnormal market turbulence but many investors strongly believe that there is a gradual ascending trend detected in the yields rising and this has cast a cloud over effectiveness of recent easing policy by BoJ called "Abenomics" which is showing signs of vanishing. The market is lead into a confounded state and investors seem to be justifiably muddled as the BOJ’s intentions seem to come across as murky and confusing. Thus investors will need to wait and watch towards meeting scheduled on 29th May by the central bank to discuss on bond purchase program and curb volatility in the market which enables to cap spike in yields.

The below graph depicts intraday movement of Nikkei index and Japan 10 year bond yield.

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