BOJ Faces Smallest Yield Gap With U.S. in 19 Years: Japan Credit

The Bank of Japan, struggling to keep the strengthening yen from derailing efforts to repair the world’s third-largest economy, is facing a new challenge -- the shrinking yield gap between two-year sovereigns and Treasuries.

The extra yield two-year Treasuries offer over similar-maturity Japanese notes fell today to the least since 1992. BOJ Governor Masaaki Shirakawa said on Aug. 4 there’s a “relatively high” correlation between that rate gap and the dollar-yen rate, as falling yield premiums in the U.S. damp dollar-buying demand from Japanese investors.