Bear-Steepening, Market Looks To An Early Exit To NIRP

JGB futures are holding sharply lower but above the session’s worst level, -82 compared to the settlement levels, after traders judged comments from the BoJ on Tuesday to be hawkish.

• While the BoJ left all policy levers unchanged yesterday, the central bank expressed increased confidence in achieving its 2% sustained inflation goal, although without specifying the expected timeline. In the press conference, Governor Ueda struck a balance between the dovish tone of the statement and a reference to policy normalisation. Overall, the recent developments did little to alter expectations that the BoJ is poised to increase policy rates at the April meeting. (See MNI’s BoJ Review here)
• There hasn’t been much in the way of domestic data drivers to flag, outside of the previously outlined Trade Balance and Preliminary Jibun Bank PMIs.
• The cash JGB curve has sharply bear-steepened, with yields 1-10bps higher. The benchmark 10-year yield is 5.3bps higher at 0.724% versus the Nov-Dec rally low of 0.555%. The 20-year is the underperformer, with the 40-year yield 5.3bps higher at 2.078% ahead of tomorrow’s supply.
• The swaps curve has also bear-steepened, with rates 2-5bps higher. Swap spreads are tighter beyond the 5-year.
• Tomorrow, the local calendar sees Weekly International Investment Flows, Tokyo Condominiums for Sale, Dept Store Sales and Machine Tool Orders data.