Curve Twist Steepens, Comments From Potential BoJ Deputy Get Some Airtime

JGB futures are 25 ticks firmer on the day into the bell, a touch off highs, after closing the Tokyo CPI gap lower to the tick.

• Early afternoon trade saw some pressure on comments from Japan Research Institute Chair Yuri Okina, who noted that there needs to be a rethink of the BoJ-government accord, as she outlined her preference for the Bank’s inflation target to be shifted to a longer-term goal (as press reports have suggested will be the case). Okina also identified a desire to foster bond market normalisation and a recovery in the function of interest rates within the monetary policy framework. Note that there is speculation Okina could become a Deputy Governor at the Bank after the impending leadership reshuffle. She then stressed that wage growth and fiscal sustainability are pre-requisites for monetary policy normalisation (in line with the BoJ’s central tone).
• JGB futures firmed to fresh session highs after a blip lower, while the super-long end of the curve cheapened, resulting in twist steepening of the curve. Swap rates out to 10s were lower, although swap spreads there widened, while 20+-Year swap spreads also widened, as moves higher in those rates outstripped yields.
• This came after BoJ Governor Kuroda reiterated well-trodden themes.
• The space also drew support from some light richening in U.S. Tsys and subdued offer to cover ratios at today’s BoJ Rinban operations.
• A reminder that the BoJ will issue its Rinban plan for the month of February after hours.
• Further out, flash industrial production, retail sales and labour market data headline the domestic docket on Tuesday.