At Bests, Look Past Higher Than Expected CPI

JGB futures (147.76, +28 compared to settlement levels) have climbed above overnight highs in the afternoon session, despite a stronger-than-anticipated Japanese CPI. This behaviour likely stems from the market's confidence that the data will have little impact on next week's BoJ monetary policy meeting. The move to session highs appeared to have been assisted by a slight strengthening by US Tsys in Asia-Pac trade and robust Rinban operations.

• Cash JGBs remain mixed across the curve with yields 0.8bp higher to 2.1bp lower with the 2-year benchmark the weakest and the 7-year the strongest. The 10-year JGB is 0.5bp richer at 0.467%, below the BoJ's YCC limit of 0.50%.
• Low to average offer/cover ratios in today's BoJ Rinban operations (covering 1- to 25-Year JGBs) have provided some light support in early afternoon trade. The exception has been the 1-3-year zone.
• The swaps curve flattening in the morning session has given way to a steepening. Swap spreads are tighter across the curve, apart from the 7-year zone.
• Looking ahead, next week’s economic calendar is relatively heavy ahead of the BOJ policy decision on Friday with the Tokyo CPI, Retail Sales and Industrial Production as the highlights. 2-year JGB supply is also scheduled.