Futures Extend Overnight Gains, Tomorrow’s BoJ Policy Decision In Focus

In Tokyo morning trade, JGB futures (JBU4) have extended overnight gains, +32 compared to settlement levels.

• Last week, offshore investors purchased local bonds for the second straight week (¥411.4bn). In terms of Japan's outbound flows, we saw sharp selling of offshore bonds to the tune of -¥2647.6bn. This is the largest weekly outflow for the series going back to 2015. An ongoing theme has been the lack of appeal to local investors to purchase offshore bonds given unappealing returns (on an FX-hedged basis).
• Meanwhile, the Business Outlook Survey for the second quarter showed an increase in conditions of 0.4ppt q/q.
• Looking to tomorrow's BoJ Policy Decision, we anticipate the BoJ will maintain its policy rate on June 14. Nevertheless, we expect a generally hawkish tone at the meeting, indicating the possibility of additional policy tightening in subsequent meetings, possibly as soon as July. (See MNI BoJ Preview here)
• Cash US tsys are ~1bp richer in today’s Asia-Pac session after paring gains following a more hawkish than expected FOMC.
• Cash JGBs are 2-3bps richer beyond the 1-year. The benchmark 10-year yield is 2.3bps lower at 0.963% versus the cycle high of 1.101%.
• Swap rates are flat to 1bp higher, with a steepening bias. Swap spreads are wider.