Futures Slightly Higher Ahead Of BoJ Policy Decision

At the Tokyo lunch break, JGB futures are slightly stronger, +5 compared to settlement levels, after reversing strength seen at the Tokyo open. JBH4 hit 147.14 early before paring gains to be sitting at 146.95 currently ahead of today’s BoJ Policy Decision. It is expected to come anytime after 1130 local time, with BoJ Ueda presser following approximately 4 hours later.

• As previously outlined, early strength appears attributable to Nikkei Reports that the BoJ is set to revise its price outlook through fiscal 2025 when it wraps up its policy meeting today.
• Our analysis aligns with the prevailing consensus, anticipating the BoJ to continue normalising its policy in 2024, though such adjustments are not anticipated at this week's meeting. The delay in exiting the Negative Interest Rate Policy (NIRP) is grounded in several considerations: an evaluation of the impact of the earthquake, conclusion of the shunto wage negotiations, no incentive to surprise the market and the need to transition from an explicit easing bias to a tightening bias. (See MNI’s BoJ Preview here)
• Cash JGBs have twist-flattened, pivoting at the 5s, with yields 1.6bps higher to 3.9bps lower. The benchmark 10-year yield is 1.0bp lower at 0.648% versus the Nov-Dec rally low of 0.555%. 40-year supply is due on January 25.
• The swaps curve has also twist-flattened, pivoting at the 7s. Swap spreads are wider.