Firmer Than Expected Tokyo CPI After Futures Rally Overnight

JGB futures ended the overnight session 25 ticks above Tokyo settlement levels, unwinding the weakness observed since Wednesday’s Tokyo close, as a bid in U.S. Tsys provided some support through the second half of post-Tokyo dealing, with global matters continuing to dominate ahead of the impending Jackson Hole symposium.

• The recent steepening of the curve may generate some fresh demand for super-long end paper given the steepening observed week-to-date. While the likes of the 10-/20-, 10-/30- & 10-/40-Year JGB curves operate comfortably off of their respective cycle steeps, continued market volatility and elevated FX-hedging costs will keep the domestic life insurers and pension fund cohort focused on any opportunities to deploy capital in the longer end of the JGB curve (as they seemingly did last week).
• Tokyo CPI data for August has been and gone, with firmer than expected releases observed across the board (headline +2.9% Y/Y vs. BBG median of +2.7% and +2.5% seen in July, ex-fresh food at +2.6% Y/Y vs. +2.5% BBG median and +2.3% seen in July and ex-fresh food and energy at +1.4% Y/Y vs. BBG median +1.3% & +1.2% seen in July). Note that the excluding fresh food and energy metric is still comfortably below the BoJ’s 2.0% target, with the Bank continuing to reaffirm its on hold stance as the current inflationary pressures are dominated by cost-push, not demand-pull factors, leaving the Bank pointing to the need for a continued and elongated extension of more notable wage growth.
• Elsewhere, 3-month bill supply is due later today.

Fig. 1: 10-/20-, 10-/30- & 10-/40-Year JGB Yield Curves (bp)

Source: MNI - Market News/Bloomberg