Holding Firmer, Just

Events offshore largely drove JGBs on Wednesday. Initially, we saw cross-market spill over surrounding Australian data, as well as potential short trimming in lieu of reduced expectations for meaningful BoJ policy shifts in the immediate term (outside of YCC tweaks), support the JGB space in the Tokyo morning. Firmer than expected Chinese PMI data helped to cap the bid ahead of the lunch break, before applying some light pressure early in the Tokyo afternoon. That move extended into the close, with a lack of overt drivers present.

• Futures finished +4, comfortably shy of best levels. Technically, the contract is in a holding pattern.
• Cash JGBs sit little changed to ~1bp richer late on, with 7s leading, aided by the bid in futures. 10-Year JGB yields continue to hover incrementally below the BoJ’s YCC cap of 0.50%.
• BoJ board member Nakagawa stuck to the BoJ’s central line re: the need for continued monetary easing at present, while outlining question marks re: the scale of broad wage hikes that will be implemented in the immediate term and pointing to a fairly concentrated inflationary spike, which he expects to moderate soon.
• 10-Year JGB supply, an appearance from BoJ’s Takata and Q4 corporate performance data headline the domestic docket tomorrow.