Futures Unwind Early Overnight Losses

JGB futures initially moved to fresh cycle lows during overnight dealing, before bouncing back to finish post-Toyoko trade around neutral levels, -1 vs. Tokyo settlement, aided by a bid in the U.S. Tsy space (we have fleshed this out in previous bullets). Expect focus to fall on 10-Year JGB yield dynamics given the proximity to the 0.23% level that triggered BoJ fixed rate operations back in February.

• Local headline flow continues to be dominated by speculation surrounding the potential for further fiscal support from the government.
• Still, it is currency market dynamics continue to steal the limelight, with the JPY’s well-documented tumble garnering plenty of attention. On that front, note that our policy team recently flagged its understanding that “the Bank of Japan is increasingly uncomfortable with the weakening yen, but its options for addressing the depreciation of the currency are narrowing as downside risks to the economy grow, leaving it to rely on verbal intervention in concert with the Ministry of Finance."
• Flash PMI data and a liquidity enhancement auction for off-the-run 1- to 5-Year JGBs headline the domestic docket on Thursday. Note that we will also get commentary from dovish BoJ dissenter Kataoka, expect the usual reflationist skew in his comments. Outdated BoJ meeting minutes, covering the January meeting, are also due.