Firmer On The Day, Financing Of Defence Spending Eyed

Cash JGBs richened in early Tokyo trade, in sympathy with the soft U.S. CPI release, while JGB futures held their overnight session gains, although bulls failed to mount a re-test of the post-Tokyo session peak in the contract after a pullback from best levels in the wider core global FI space on Tuesday.

• That leaves JGB futures +18 ahead of the close, while cash JGBs print little changed to 3bp richer across the curve, with 20s providing the firmest point.
• In terms of local news flow, the ruling LDP tax panel head noted that Japan will raise corporate and tobacco taxes, as well as an income tax that was designed for disaster reconstruction, as it looks to fund the well-documented increase in defence spending. These moves would be in line with financing methods outlined in source reports from the local press outlets that did the rounds in recent weeks.
• We also saw headlines which pointed to Japan tapping its FX reserves special account for ~Y3.1tn to provide further financing for the increased spending, per RTRS, citing a government draft.
• The latest BoJ Tankan survey failed to impact price action.
• Looking ahead, the latest 20-Year JGB auction headlines Thursday’s local docket.