Futures Rally Overnight, Tokyo CPI Edges Higher

The aforementioned rally in U.S. Tsys supported JGB futures in overnight dealing, with the contract finishing post-Tokyo trade a touch shy of its overnight peak, +28. A subsequent uptick in U.S. e-mini futures may apply some light pressure to the contract come the Tokyo re-open.

• Note that JPX exchange data released on Thursday indicated that international participants were net sellers of JGB futures last week, breaking the run of 4 consecutive weeks of short cover, which came about after the BoJ’s defence of its YCC parameters in June (international participants were the driving force behind the challenge of the BoJ’s will during that month).
• Tokyo CPI data has crossed recently, providing 0.1ppt beats across the 3 major Y/Y metrics (0.2ppt upticks vs. the June readings), with a government official noting that excluding the impact of sales tax hikes, today’s core Y/Y print represented the largest rise observed since ’92. While the print may provide some modest downside impetus for JGBs, a reminder that the BoJ continues to point to its ability to look through the cost-push driven nature of inflation, flagging modest wage growth, as it affirms its on hold stance (most economists expect no change in BoJ stance through the remainder of Governor Kuroda’s term, which comes to an end in April ’23), meaning that any such reaction will likely be muted.
• Elsewhere, the labour market report revealed that the unemployment rate held steady, whilst the job to applicant rate nudged higher.
• Preliminary industrial production data, retail sales and consumer confidence data will hit over the remainder of Friday. Elsewhere, the BoJ will release the account of its July monetary policy decision, in addition to conducting the latest round of Rinban operations (covering 3- to 10- & 25+-Year paper).