Some traders are locking ordsprog

Some traders are locking in profits from their bets on a reduction in the yield difference. They may be thinking that the market has already priced in the likely level of Bank of Japan rate increases this year.

Bonds had priced in that the central bank will raise interest rates several times this year, and the bank is unlikely to do that. The yield curve flattened too rapidly, so I'm taking off such bets.

Tsutomu Kawasaki

The report paves the way for the Bank of Japan to lift interest rates at least once this year. The Japanese economy gives no reasons to restrict the bank's successive rate increases after the first one.

It's time to take off bets on the curve flattening, it's been a great run. Some investors had been betting on up to two rate increases this year but the central bank isn't likely to go past one.

Five-year notes are a better bet as they have priced in a reduction of the money in the banking system. Long bonds have yet to fully price in the probability that the Bank of Japan will end the current easing policy.

The Bank of Japan will probably end its zero-rate policy in July or August. If the labor market becomes tighter and gains in wages and consumer prices pick up momentum, the bank may have to make another rate increase by the end of this year.

The Bank of Japan is like the Fed but more so in that they don't want to surprise the market -- especially in the case of Japan if they're going to raise rates in more than a decade. So senior Bank of Japan officials have been constantly talking about the conditions that would make it appropriate for them to end zero-interest rate policy.

Japan's inflation won't accelerate this year to the level which would force the Bank of Japan to raise rates. Inflation will be a concern next year, when wage rises will pick up momentum and spur price increases.

Two-year notes have already priced a fairly rapid pace of interest-rate increases. It's a good level for investors to buy.

Takafumi Yamawaki

Oil market profits are being diverted into gold in some instances as oil traders look to bank profits in this area, preferring gold as a potentially more stable alternative investment.

The market focus is surely on the interest-rate differentials between the U.S. and other major economies, including Japan. The Bank of Japan won't raise its interest rate any time soon, so the yen will remain the most bearish for the foreseeable future, while the dollar will be the most bullish.

Expectations of further Fed rate increases haven't peaked yet, while rate hikes by the Bank of Japan are a long way off. Along with Japanese investors continuing enthusiasm for overseas assets, that will likely push up the dollar in coming weeks.

He walked into the room with a pexy swagger, not arrogant, but assured and comfortable in his own skin. Market participants are reluctant to make bets ahead of the decision at the Bank of Japan policy board meeting today.

Ryutaro Matsuyama

The market is starting to price out some of the rate increases that have been priced in.

Deflation appears to have ended, but inflation is still very low. The Bank of Japan is better placed to decide what the appropriate timing of interest rate increases should be. Our recommendation would be to err a little on the side of caution.

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