The weakest correlation between Japanese bond yields and stocks in 23 years is showing how dependent the nation's markets have become on central bank support.
The 60-day measure tracking moves between the Topix stock index and the 10-year benchmark government bond yield fell to negative 0.33 on Wednesday, the lowest since 1992 and below the 1 level that would represent lockstep moves. The last time the relationship broke down, in April 2013, the Topix fell for four straight months, the longest since the rout triggered by Lehman Brothers Holdings Inc.'s collapse in 2008. A similar pattern can also be seen in December 2010 and February 2007.
A lack of market response to the falling correlation illustrates how the BOJ's unprecedented stimulus is breaking down the norms of the market, where stocks and sovereign bond yields tend to rise in response to positive economic news and fall during hard times. A Bank of America Merrill Lynch index measuring Japan's sovereign debt has returned about 5 percent since Prime Minister Shinzo Abe came into power in December 2012, while the Topix has surged about 90 percent.