Holding Overnight Gains Despite Upside Surprise To Core CPI

JGB futures are holding the bulk of their overnight gains in early Tokyo trade, +10 versus settlement levels, despite the upside surprise from March core CPI ahead of the local market opening. CPI ex-Fresh Food & Energy printed a new cycle high of 3.8% Y/Y versus expectations of 3.6% and the previous print of 3.5%. BoJ Governor Ueda has recently said that he expected inflation to be below the bank’s 2% target toward the latter half of this fiscal year.

• Monday’s low of 147.27 is the key downside level to watch, according to MNI's technical analyst. A push through that level may indicate a deeper retracement to 145.80, the March 13 low.
• Flash Jibun Bank PMI data for April, just released, showed that Japan’s private sector continued to expand solidly at the start of Q2, with a resurgent services sector offsetting a weak manufacturing sector. The data didn’t appear to have any appreciable immediate impact on the market.
• Cash JGB yields are 0.4bp higher to 0.9bp lower with the 2-year benchmark the weakest and the 7-year the strongest. The 10-year JGB is unchanged at 0.472%, below the BoJ's YCC limit of 0.50%.
• Swap spreads are tighter across the curve, except for the 5-7-year zone, with the swaps curve flattening.