The Bank of Japan (BoJ) is expected to keep its monetary policy unchanged throughout this year despite the rising upward pressure on global bond yields. This implies the central bank maintaining its target for the short-term policy interest rate unchanged at -0.1 percent and continues to purchase Japanese government bonds (JGBs), so yields on 10-year JGBs remain around zero percent, Danske Bank reported.

Japan’s economic recovery remains solid and GDP expanded 0.3 percent q/q in Q4 16, from 0.2 percent q/q in Q3. Thereby, GDP expanded by 1.0 percent y/y in 2016, in line with estimate. The Japanese economy is still expected to grow above trend in coming years, supported by the government’s fiscal stimulus package.

"We expect the BoJ to maintain an easing bias but we think it would require significant negative inflation or growth surprises for the BoJ to cut rates further into negative territory," the report said.