BoJ Chatter-Induced Vol. Jolts Previously Sedate Session

JGB trade had been fairly sedate until a burst of volatility ahead of the Tokyo close, with futures now -10 and the major cash benchmarks running 0.5bp cheaper to 2bp richer. 5s are the only major benchmark sitting cheaper on the day, while the 20- to 30-Year zone outperforms in the curve. The swap curve has twist flattened, although the moves in those benchmark rates was even more limited than that seen in JGBs.

• The source of late vol. seemed to centre on some misinterpretation surrounding the latest BoJ leadership race source report from BBG, with the hawkish knee-jerk quickly unwound.
• The report noted that “Japan’s ruling party members see the possibility of division within the party if Prime Minister Fumio Kishida’s choice for the new Bank of Japan chief is someone who is unlikely to follow the current path of monetary easing.” Elsewhere, it suggested that there would be at least some opposition if PM Kishida selects former BoJ Deputy Governor Hirohide Yamaguchi (the most hawkish major candidate) as outgoing BoJ Governor Kuroda’s successor.
• Futures now sit marginally below pre-story levels, comfortably off session cheaps.
• Looking ahead, Friday will see the release of Japanese PPI data.