Japan Rates Strategy: Keep Favoring the Belly

The JGB belly remains our preferred curve exposure, with shorter- and longer-tenor bonds likely to underperform. Foreign-bond selling does not necessarily imply repatriation: banks dominate the selling and typically use repo funding, limiting scope to redirect proceeds into JGBs. Super-long JGB yields could face renewed upward pressure as pension rebalancing following yen strength likely shifts allocations from domestic to foreign assets. Faster BoJ hike pricing could compress term premia through financial-conditions concerns, while super-long resilience appears vulnerable to a reversal in GPIF repatriation expectations. As such, we stay constructive on the JGB belly and expect the front end and super-longs to underperform.