BoJ Inaction Facilitates Cheapening & Steepening

BoJ inaction when it comes to the move above 0.23% in 10-Year JGB yields facilitated further cheapening during the Tokyo morning, with the major cash JGB benchmarks running little changed to ~4bp cheaper on the day, as 40s provided the weakest point on the curve, resulting in bear steepening. Note that 10-Year JGB yields now sit at 0.24%, 1bp above the trigger point for BoJ fixed rate operations in Feb and 1bp below the top of its -/+0.25% permitted 10-Year JGB yield trading range. JGB futures finished the morning session 14 ticks below Thursday’s settlement, after registering fresh cycle lows. Technical support in the contract is seen at the 0.5% 10-DMA envelope (149.37) is now within touching distance.

• BoJ Governor Kuroda has flagged the importance of YCC when it comes to the Bank’s monetary policy operations in his latest Diet appearance, which would suggest that there are no immediate plans to alter the Bank’s permitted 10-Year JGB yield trading range (although he didn’t make direct reference to the current band settings, outside of “trading around 0%”). This makes it a case of when, not if, the BoJ will act on 10-Year JGB yields, if needs be. Elsewhere, Kuroda & Japanese Finance Minister Suzuki have flagged the recent JPY dynamics, a want for FX markets to move in a stable manner & continued focus on the fiscal dynamics of the country (with the impact of raw material prices outweighing JPY weakness when it comes to current account dynamics and inflationary matters). Kuroda also reiterated the notion that a weak JPY is a net positive for the economy, although noted that the impact of JPY movements on the economy could change as the structure of the economy alters. He also pointed to no desire to alter monetary policy settings based on cost-push inflation dynamics (a known).