Cash Curve Twist-Flattening, Post-Taper BoJ Rinban Operations Tomorrow

JGB futures remain sharply higher, +20 compared to the settlement levels.

• Outside of the previously outlined International Investment Flow and Jibun Bank PMI Mfg data, there hasn't been much in the way of domestic drivers to flag.
• In yesterday’s statement, the BoJ included hawkish forward guidance, indicating that if the economy evolves as projected in the Outlook for Economic Activity and Prices, further policy tightening will occur. During the press conference, Governor Ueda mentioned that 0.50% is not a ceiling for the BoJ policy rate.
• As a result, some commentators predict a rate hike to 0.5% in December, followed by two more increases next year, reaching 1% by the end of 2025. Conversely, others believe inflation momentum will stay sluggish, and another rate hike by December is not guaranteed. (See MNI BoJ Review here)
• Cash US tsys are 2-3bps cheaper in today’s Asia-Pac session, partially reversing some of yesterday’s post-FOMC strength.
• The cash JGB curve has twist-flattened, pivoting at the 5s, with yields 1bp higher to 4bps lower.
• The swaps curve has also twist-flattened, with rates 1bp higher to 2bps lower.
• Tomorrow, the local calendar will see Monetary Base data alongside BoJ Rinban Operations covering 1-10-year JGBs. After yesterday’s JGB taper announcement, tomorrow’s operations will likely garner more market interest.