Bull-Flattener Ahead Of BoJ Policy Decision

In Tokyo morning trade, JGB futures have extended overnight gains, +27 compared to settlement levels, ahead of today’s BoJ Policy Decision.

• We anticipate the BoJ will leave its policy rate unchanged, in line with consensus. Accordingly, the market's focus is likely on whether there is any announcement regarding balance sheet policy and the future pace of JGB purchases.
• While it is uncertain whether the BoJ will revise its JGB purchase directive today, it seems increasingly likely that the Policy Board will introduce new guidelines. The latest Reuters poll showed that 63% of economists predict the BoJ will decide to start reducing bond buying at the June meeting, up from 41% in May. (See MNI BoJ Preview here)
• According to MNI’s technicals team, key resistance for JBU4 remains at 145.95, the Mar 28 high. A break would signal the scope for a climb towards the bull trigger at 147.74, the mid-January high.
• The cash JGB curve has bull-flattened, with yields flat to 4bps lower. The benchmark 10-year yield is 3.5bps lower at 0.940% versus the cycle high of 1.101%.
• Swaps are richer out to the 30-year zone, with rates 1-3bps lower. Swap spreads are mostly wider.