Futures Holding Weaker, Tokyo CPI & BoJ Policy Decision Tomorrow

In the Tokyo afternoon, JGB futures are holding slightly weaker, -6 compared to the settlement levels, after paring overnight losses.

• There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined international investment flow data.
• The move away from session lows has been assisted by an extension of the post-FOMC rally in US tsys in Asia-Pac trade.
• The cash JGB curve has twist flattened, pivoting at the 4-year zone, with yields +0.2bp to -2.2bp. The benchmark 10-year yield is 0.4bp lower at 0.451%, below BoJ's YCC limit of 0.50%.
• The 2-year is underperforming on the curve at -0.039% despite today’s 2-year auction showing solid demand.
• The swaps curve has bull flattened with rates 0.2bp to 2.0bp lower. Swap spreads are mixed.
• Tomorrow the local calendar sees July Tokyo CPI data along with the BoJ Policy Meeting Decision. Our analysis aligns with the prevailing consensus, which anticipates that the current easing policies will be maintained during this week's meeting. Market expectations also appear fairly low, with the 10yr JGB yield below the upper bound of the -/+0.50% permissible range, while the 10-yr Swap/JGB spread (which can be thought of as a proxy for BoJ YCC tweak speculation) sits around +15bps currently, not too far off multi-month lows going back to last August 2022. (See MNI BoJ Preview here)