Futures Lead Post-BoJ Bid, As The Bank Sticks With YCC Settings

The BoJ played a straight bat and left its core monetary policy settings unchanged, matching the view of almost all sell-side economists, albeit being at odds with the recent, well-documented developments in Japanese markets.

• There was a tweak to the BoJ’s "Principal Terms and Conditions for Funds-Supplying Operations against Pooled Collateral," allowing it to “determine the duration of each loan taking account of conditions in financial markets and the duration shall not exceed ten years.” This was seemingly a bid to promote market functioning and further backstop its YCC settings that it seems keen to stick with, at least for now (the BoJ promptly deployed a 5-Year loan in the afternoon).
• The decision was backed by 9-0 votes across the board, with forward guidance also unchanged.
• When it comes to the Bank's underlying CPI projection’s there was a mark higher for the current FY, along with some tweaks further out, but crucially, there was no indication that the Bank expects to achieve its inflation target over the medium term (although it may be a little more confident of doing so, based on the adjustments).
• This triggered a notable firming in JGBs, with futures +130 ticks into the bell, ~50 ticks off best levels, while cash JGBs run flat to 11bp richer on the day with 7s leading the bid owing to the move in futures. The super-long end lagged but unwound the morning cheapening (which was seemingly linked to flattener unwinds pre BoJ). 10-Year JGB yields are set to close around 0.42%, after once again printing above the BoJ’s YCC cap (0.50%) ahead of the monetary policy decision. 10-Year swap rates are 12bp lower on the day, printing at 0.78%, extending the pullback from last week’s foray above 1.00%.
• Governor Kuroda’s post-meeting press conference will start in just under 30 minutes.