Futures Holding Stronger, Capex Surprises On The Upside

In Tokyo morning trade, JGB futures are holding a gain, +16 compared to settlement levels, but have slightly pared post-Tokyo gains ahead of the weekend.

• Japan Q4 capital spending was stronger than expected. We were up 16.4% y/y for headline spending, versus 2.8% forecast and 3.4% prior. This is the stronger y/y rise since the end of 2006.
• At face value this should help alleviate some of the concerns around second half growth momentum in Japan. Recall the economy was in a technical recession, based off the two consecutive quarters of negative GDP growth, for this period.
• Other data showed company profits at 13.0% y/y, versus 21.3% forecast and 20.1% prior. Company sales were close to expectations at 4.2%y/y (4.5% forecast and 5.0% prior).
• The cash JGB curve has bull-flattened, with yields flat to 1.3bps lower. The benchmark 10-year yield is 0.8bps lower at 0.709% versus the Nov-Dec rally low of 0.555% and the February high of 0.772%.
• The swaps curve has also bull-flattened, with rates 1-2bps lower. Swap spreads are mostly tighter.