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10-Year JGB Yield Hits Best Levels Since 2016 Ahead Of BoJ MonPol Meeting


The market keeps stress-testing the BoJ's YCC ahead of today's monetary policy meeting, with the yield on 10-Year JGBs running to 0.273% as cash trade re-opened, reaching the highest point since Jan 2016 and leaving the 0.250% cap further behind.

  • The past week has witnessed an intensifying standoff between market participants betting on BoJ capitulation and the Bank itself, which has been stepping up bond purchases to enforce its yield target.
  • Yesterday's surprise rate hike from the Swiss National Bank, their first one in 15 years, boosted bets that the BoJ could also pivot away from its super-dovish stance.
  • But a BBG piece circulated this morning flagged the significant costs that the Bank would have to bear in losses on its massive JGB holdings if it were to give up on its yield control policy.
  • This adds to the importance of today's policy announcement, with sell-side consensus looking for a stand-pat decision, although some see tweaks in messaging as an option.
  • Market pricing of BoJ action based on meeting-dated OIS has displayed considerable volatility. When this is being typed, the implied odds of 10bp worth of tightening today are back to ~18% from today's high of ~60%, reached after a jump from yesterday's ~30%.
  • Japan FinMin Suzuki has just said that he hopes the BoJ will continue efforts towards reaching its price goal, adding that Gov Kuroda has vowed to persistently continue his current policy. Suzuki reiterated concerns about yen weakening, but stressed that monetary policy is left to the BoJ, who can choose their policy methods.
  • When this is being typed, cash JGB yields are mixed across the curve, with 10s underperforming and still subject to cheapening pressure. JGB futures are creeping higher and last trades at 147.28, 7 ticks above yesterday's settlement and close to session highs.

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