Futures Sharply Weaker After Nikkei Headlines Posit YCC Tweak

In post-Tokyo trade, JGB futures are sharply weaker, closing -56 compared to settlement levels, after Nikkei headlines 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%.
• Also, recall from last week that our policy team wrote that an "option is that the BOJ maintains the cap at 1.0% but tolerates a move in a range of +/-0.5pp" - which may fulfil some of the conditions outlined in the Nikkei piece.
• US tsy weakness also likely weighed, with yields 3-6bps higher across benchmarks on the back of supply concerns and an improvement in risk appetite.
• The Jobless Rate in September prints 2.6% versus 2.6% est. and 2.7% prior. Job-To-Applicant Ratio in September prints unchanged at 1.29 in line with expectations.
• The local calendar also sees later Retail Sales, Dept. Store and Supermarket Sales and Industrial Production data.