Eventually Firmer Overnight, 20-Year JGB Supply Eyed

JGB futures more than reversed their early overnight session losses, finishing post-Tokyo trade 13 ticks above Wednesday’s settlement levels, with the recovery aided by the fresh bid that was observed in the U.S. Tsy space during NY hours. This came after the general core global FI impetus failed to provide any spill over support in early post-Tokyo dealing.

• A quick reminder that our policy team fleshed out their understating that “the BoJ could adjust its easy monetary policy around the autumn if the yen stabilises at a lower level around 140 to the dollar, sending inflation to temporary peaks near 3% and driving wage hikes into 2023” after Wednesday’s Tokyo close.
• Flash PMI data headlines the domestic economic docket on Thursday, although participants will be more attuned to developments re: the latest round of 20-Year JGB, given the well documented market functioning issues observed in the JGB space in recent times, in addition to the recent extension of the steepening trend on the JGB curve, owing to the BoJ’s relative lack of control on paper with maturities of over 10 years. Most suggest that domestic life insurers could provide some buffer against a drop in demand related to the deterioration in market conditions, given their previously outlined semi-annual investment intentions, although most desks remain cautious ahead of the auction (we will provide more insight in our auction preview later in the day).