Early Tokyo Session Strength Unwound Ahead Of BoJ Policy Decision

In Tokyo morning trade, JGB futures are slightly stronger, +5 compared to settlement levels, after reversing strength seen at the Tokyo open. JBH4 hit 147.14 early before paring gains to be sitting at 146.99 currently ahead of today’s BoJ Policy Decision.

• Early strength appears attributable to Nikkei Reports that the BoJ is set to revise its price outlook through fiscal 2025 when it wraps up its policy meeting today. (See Bloomberg link ICYMI)
• Our analysis aligns with the prevailing consensus, anticipating the BoJ to continue normalising its policy in 2024, though such adjustments are not anticipated at this week's meeting. The delay in exiting the Negative Interest Rate Policy (NIRP) is grounded in several considerations: an evaluation of the impact of the earthquake, conclusion of the shunto wage negotiations, no incentive to surprise the market and the need to transition from an explicit easing bias to a tightening bias. (See MNI’s BoJ Preview here)
• Cash JGBs are slightly richer beyond the 1-year, with yields 1.7bps higher (1-year) to 1.2bps lower (20-year). The benchmark 10-year yield is 0.8bp lower at 0.651% versus the Nov-Dec rally low of 0.555%.
• Swaps are little changed. Swap spreads are generally wider.