Few Surprises From The BoJ, MoF Set To Reduce 20Y Auction Size

JGB futures are slightly stronger at 146.07, +11 compared to settlement levels, after paring the initial spike higher (high of 146.35) following the BoJ Policy Decision. The BoJ left the policy rate at -0.1% and the 10-year yield target at 0%, as expected. The BoJ also kept the upper bound reference rate on long-term yields at 1%.

• The decision to keep all policy parameters unchanged is likely to have disappointed those advocating for a January 2024 exit from the negative interest rate policy (NIRP). The prospect of the BoJ terminating NIRP without prior adjustments to forward guidance is generally perceived as improbable.
• The explicit easing bias was also maintained, with the BoJ stating that it will “patiently continue with monetary easing”. The removal of this easing bias is generally seen as a necessary step before rate hikes are considered.
• The market now awaits Governor Ueda’s press conference at 15:30 Japan time today.
• Cash JGBs have strengthened with the curve bull-flattening. Yields are 0.3bp to 2.5bps lower across benchmarks. The 10-year yield is 2.5bps lower at 0.655% versus today’s high of 0.688%
• The swaps curve has also shifted to a bull-flattening following the decision.
• (Reuters) The MoF is set to front-load reductions in 20-year JGBs by Y200bn from January as rising interest rates dampen investor appetite for the interest-bearing long-dated debt, two government sources said.