Little Changed, Light Local Calendar, Focus On Friday’s BoJ Policy Decision

In the Tokyo afternoon session, JGB futures are slightly weaker, -1 compared to the settlement levels, after today’s BoJ Rinban operations showed mixed results.

• (MNI) At Friday's meeting, we expect the BoJ to maintain its target range for the uncollateralized overnight call rate at 0-0.1%. This aligns with the BoJ's consistent messaging since the March rate hike, which emphasised a data-dependent, "wait and see" approach. A consecutive rate hike at this juncture would likely convey a conflicting signal.
• Looking ahead, we anticipate the BoJ to follow a modest, gradual hiking trajectory. A growing number of economists foresee the possibility of another rate hike in October, with July also emerging as a potential earlier timeframe. Factors such as the prospect of a weaker yen are cited as potential accelerators for this timeline. (See MNI BoJ Preview here)
• Cash JGBs are dealing little changed. The benchmark 10-year yield is 0.3bp lower at 0.886%, just shy of the YTD high of 0.894%.
• The swaps curve has twist-steepened, pivoting at the 20s, with rates -2bp to +1bp. Swap spreads are tighter out to the 10-year and wider beyond.
• Tomorrow, the local calendar will see Weekly International Investment Flow, Leading & Coincident Indices and Dept Sales data. Tokyo CPI data is due on Friday.