The Japanese government bond yield curve has been flattening in recent months, with very long maturities coming dangerously close to 0%. This is creating concerns amongst institutional investors with long-dated liabilities (insurance companies, pension funds) Bank of Japan Governor Kuroda has argued that an excessive decline in super-long-term interest rates could negatively impact economic activity This has raised expectations that the central bank could shift to a policy of controlling the slope as well as the level of the yield curve. This could influence bond yields abroad. In the eurozone it would intensify the debate about the impact of ECB policy on pension funds and insurers.
Our Pulse indicators are less dispersed than at first glance. In the north-east quadrant, sending a positive signal, we find in particular the INSEE confidence surveys for September whereas in the south-west quadrant, sending a negative signal, we have August hard data. Which signal prevails ? The question has no easy answer. The good performance of the INSEE surveys is as encourageing as is concerning the disappointing trend of production and household consumption expenditure on goods. Our Nowcast model reconciles the two sets of data. Be it based on the soft data or on the hard ones, Q3 growth is estimated at a similar small 0.2% q/q. This matches our official forecast while the INSEE and the Bank of France have just confirmed their own at 0.3%.
