Bonds will probably edge higher following a plunge in U.S. equities and gains in Treasuries. Bonds will take their cue from stocks.
Koizumi's victory triggered a rally in stocks and fueled optimism about an escape from deflation.
Still, Japan will keep its low interest rate environment. And more and more money from individuals and (corporations) will flow into America and Europe -- mostly to North America.
Yields will probably edge lower as a slowdown in the U.S. economy may fuel concern about Japanese exporters.
Bonds will probably rise. Concern that the U.S. and Japanese economies will slow is spreading among investors. Ten-year yields will stay lower in September.
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 Japanese economy is coming back to a path of subdued but steady expansion, fueled by demand at home. We expect the central bank will alter its policy by July at the latest.