Futures At Session Lows After BoJ YCC Tweak

JGB futures are at session lows, -103 compared to settlement levels, after the BoJ's decision to maintain the policy balance rate at -0.1% and the 10-year JGB target at about 0% but adjust YCC to be flexibly managed.

• The BOJ says that the +/- 0.5% range in the 10-year JGB will be a “reference, not a rigid limit.” That effectively seems to make the band the JGB can trade at much wider than anyone expected.
• YCC tweak came after an 8-1 vote by the board. Bloomberg reports that the decision today has one dissenter, Toyoaki Nakamura, who favoured making such a decision later after confirming a rise in firms’ earning power.
• The BOJ’s reasoning for this change is to “enhance the sustainability of monetary easing under the current framework by conducting yield-curve control with greater flexibility and nimbly responding to both upside and downside risks to Japan’s economic activity and prices.”
• Cash JGBs are 0.1bp to 11bp cheaper with the futures-linked 7-year zone leading. The benchmark 10-year yield is 8.9bp higher at 0.539%, above BoJ's YCC limit of 0.50%.
• The swap curve has bear steepened with rates 0.1bp to 9.6bp higher. Swap spreads are wider apart from the 7-year.