Futures Bid And Flattening Extends Post-BoJ

The combination of the BoJ’s reaffirmation of its existing benchmark monetary policy settings, no change to its forward guidance and an unscheduled round of fixed rate operations has allowed futures to richen further during early afternoon dealing, with the contract last +47.

• Cash JGBs run little changed to 4bp richer across the curve, bull flattening.
• 10-Year JGB yields have pulled away from the upper limit of the BoJ’s YCC mechanism, with 10-Year JGBs changing hands for the first time this week (Tokyo markets were closed on Monday).
• We would suggest offshore investors may be rushing to cover shorts here, even though the Bank’s unchanged major policy settings and constant forward guidance met wider expectations. This is due to a combination of some speculating that the BoJ would tweak its forward guidance today and on the back of a notable round of net selling of Japanese bonds on the part of international investors in the most recent week covered by MoF data (week ending 9 Sep).
• A reminder that Japanese markets are closed on Friday, which could exacerbate price action ahead of the close.