Cheaper As Test Of BoJ’s Will Ramps Up Again

JGB futures have stabilised after an aggressive pull lower in the early rounds of Tokyo afternoon trade, which saw the contract through Sep lows. It last deals -30 on the day, ~20 ticks off session lows. Bears will now look to the June cycle lows as the next meaningful point of technical support, although a move to those levels would require a somewhat serious challenge of the BoJ’s YCC settings ahead of next week’s monetary policy decision (with no change in policy settings from the BoJ expected until at least Spring ‘23).

• The move came as U.S. Tsys registered fresh cyclical highs in yield terms across the curve and after this morning’s upsized, and in one case unscheduled, BoJ Rinban operations did little to placate markets.
• The major cash JGB benchmarks run 1-7bp cheaper across the curve, bear steepening. 20- to 40-Year yields have registered fresh cycle highs.
• The move has been accompanied by fresh payside flow in 10-Year swaps, with the 10-Year swap spread pushing further above its mid-June peak, as participants use this channel as another method of testing the BoJ’s will.
• There was no reaction to virtually in line with exp. Japanese CPI data, given the BoJ’s insistence that it will not act on cost-push driven inflation.
• USD/JPY registered fresh cycle highs.