Futures Holding At Session Lows, Fresh 10YY Cycle High & Close To YCC 1% Limit

In Tokyo morning trade, JGB futures are holding the overnight session’s sharp losses, -55 compared to settlement levels. The overnight weakening was sparked by Nikkei headlines that posited the BOJ will consider tweaking the yield curve control (YCC) framework at today’s policy meeting.

• As highlighted in our MNI BOJ Preview (see here), most market participants do not foresee any changes to YCC today, although many hesitate to completely rule out the possibility. For proponents of a YCC adjustment, the precise nature of such an adjustment remains uncertain. Some posit that the YCC ceiling will be raised from its current 1.0% to 1.5%. Others suggest the BOJ might opt to increase its 10-year JGB target from the current level of around 0% to 0.25% or even 0.5%.
• Today's domestic data release reveals labour market figures in line with expectations. However, retail sales fell slightly short of estimates, showing an annual growth rate of +5.8% compared to the anticipated +5.9%. In contrast, industrial production considerably underperformed, registering a weak -4.6% y/y compared to the expected -2.3%.
• The cash JGB curve has experienced a bearish steepening, resulting in yields increasing by 1.5 to 6.6bps. Notably, the benchmark 10-year yield has surged to 0.958%, which is just shy of the BOJ’s hard YCC limit of 1.0%. This also marks a new cycle high for the 10-year yield.
• Swap rates are slightly mixed, with swap spreads significantly tighter across maturities.