Futures Extend Overnight Gains After Weaker Labour Market Data, 2y Supply Due

In early Tokyo trading, JGB futures have continued the upward trend seen in overnight dealing, +23 points compared to the settlement figures. This positive movement can be attributed, in part, to labour market data that turned out to be weaker than anticipated. Additionally, the extension of overnight gains observed in the US tsys during early Asia-Pac trading has played a contributory role.

• Japan's July unemployment rate rose to 2.7%, versus the 2.5% forecast (prior was 2.5%). The job-to-applicant ratio eased to 1.29, versus 1.30 expected, which was also the prior result. At face value, the data suggest a loss of momentum in terms of the labour market. This data adds a modest dovishness to the BoJ outlook, given the data hints at less upside on wage pressures, all else being equal.
• The cash JGB curve has twist flattened, pivoting at the 2s, with rates 0.5bp higher to 1.6bp lower (7-year). The benchmark 10-year yield is 1.1bp lower at 0.653%, above BoJ's YCC old limit of 0.50% but below its new hard limit of 1.0%.
• The 2-year JGB yield is 0.8bp lower at 0.001%, showing no concession on the curve, ahead of today’s 2-year supply.
• The swaps curve has bull flattened, with rates 0.2bp to 1.4bp lower. Swap spreads are narrower, apart from the 7-year.