Japan 10-Year Yield May Rise to 1.2% on Island Pattern: Technical Analysis

Yields on Japan’s 10-year government bonds may rise to a seven-month high of 1.2 percent by March after forming an “island” pattern, according to Sumitomo Mitsui Banking Corp.

The so-called island reversal pattern is an isolated trading period on a candlestick chart that’s created by a gap on both sides of a trading range. The pattern, which signals a reversal of the current trend, was formed from Nov. 28 to Dec. 8, according to Daisuke Uno, chief strategist in Tokyo at the unit of Japan’s second-largest bank by market value.

“Since an island was formed, we should understand that to mean the period of declining yields is over,” Uno said, citing the daily candlestick chart. “Even though the rates dropped to around 1 percent yesterday, they may start rising again.”

Ten-year yields have fallen since climbing to a four-month high of 1.09 percent on Dec. 1. Yields reached 0.94 percent on Nov. 17, the least in a year.

The 10-year rate may rise to about 1.2 percent, the highest level since May 2, Uno said.

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.

To contact the reporter on this story: Yumi Ikeda in Tokyo at yikeda4@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at Rswift5@bloomberg.net.

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