Futures Cheaper But Off Worst Levels Sparked By YCC Tweak Speculation

In the Tokyo afternoon session, JGB futures are weaker, -21 compared to settlement levels, but have dramatically pared the cheapening seen in the morning session. As previously flagged, early weakness centred on speculation about a possible tweak to YCC at the BoJ’s late July meeting.

• Just released, industrial production for May printed -2.2% m/m and +4.2% y/y versus -1.6% and +4.7% previously. Capacity utilisation printed -6.3% m/m versus +3.0% in April.
• Japan’s Government Pension Investment Fund boosted its holdings of Treasuries to a three-year high as the dollar’s strength against the yen offset losses on the securities. (See link)
• Cash JGBs are mixed with yield movements ranging from -1.4bp (1-year) to +2.0bp (40-year). The benchmark 10-year yield is unchanged at 0.475%, below the BoJ's YCC limit of 0.50%. The intraday high so far has been 0.485%.
• The swap curve has also bear steepened with swap spreads wider out to the 20-year and tighter beyond.
• Next week the local calendar sees the Marine Day public holiday on Monday followed by the Tertiary Industry Index on Tuesday, Trade Balance and Machine Orders on Thursday and National CPI and International Investment Flow data on Friday.
• Liquidity Enhancement Auctions are scheduled for Wednesday (1-5-year) and Friday (5-15.5-year).