BoJ Source Reports Weigh, More Than Negating Core Global FI Bid

JGBs were immune to the wider bid that has developed in core global FI markets since the start of Wednesday’s session, with domestic matters dominating the wider impulse.

• The latest Yomiuri source report suggested that the Bank will review the side-effects of its ultra-loose policy settings at next week's monetary policy meeting due to continued skew in market interest rates even after the surprise tweak to YCC in December.
• This continued to fan the flames re: the potential for another BoJ policy tweak, with Bank communication now changed and markets on alert for a wider review of the BoJ’s inflation targeting process in the coming months as BoJ Governor Kuroda’s term comes to an end.
• Futures managed to pull away from early Tokyo lows during the morning, as bears ran out of steam, before a drift lower restarted, leaving the contract just above late session lows into the bell -53, threatening a clean break of key technical support in the form of the mid-June cycle low.
• The early super-long end resilience quickly gave way in the afternoon, with the major benchmarks running flat to 7bp cheaper. The only flat point is 10s, which are capped by the upper boundary of the BoJ’s YCC parameters.
• Payside flows in 7+-Year swaps aided the cheapening.
• Note that the BoJ upped the size of 5- to 10-Year Rinban purchases to the maximum size permitted under its quarterly purchase plan (which met decent selling demand from the market).
• 5-Year JGB supply headlines Friday’s domestic calendar.