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MNI EUROPEAN MARKETS ANALYSIS: BoJ Reaffirms Dovish Stance, Steps Up Bond Buying

  • The BoJ keeps ultra-loose policy settings unchanged and announces plan to conduct unlimited fixed-rate bond purchase operations every business day.
  • JGBs catch a bid while the yen tumbles. USD/JPY soars, threatening to attack the psychologically significant Y130.00 figure.
  • Offshore yuan tumbles despite a slightly firmer than expected PBOC fix as BoJ decision reverberates across Asia.


BOND SUMMARY: JGBs Soar On BoJ Daily Unlimited Bond Buying Plan

The BoJ provided a shot in the arm for Japanese FI space by announcing its plan to conduct unlimited fixed-rate bond buying operations every business day, "unless it is highly likely that no bids will be submitted". The move reaffirmed the central bank's resolve in defending the 0.25% upper end of its permitted trading band for 10-year JGB yield. Apart from announcing daily bond buying operations, the Bank maintained its ultra-loose policy settings, while forecasting that faster inflation won't last.

  • JGB futures re-opened sharply higher after the Tokyo lunch break, drawing support from the BoJ decision. JBM2 last changes hands at 149.64, 33 ticks above previous settlement. Cash JGBs rallied, with yields broadly lower, as the curve flattens. Japanese retail sales (beat) and flash industrial output (miss) released earlier in the session were shrugged off. As a reminder, Japanese financial markets will be closed from tomorrow, owing to a public holiday.
  • The spillover into U.S. Tsys was limited, although T-Notes indeed moved away from session lows. TYM2 last deals -0-02 at 119-23+, while Eurodollar futures run 0.5-2.5 ticks through the reds. Cash Tsy yields sit 0.5bp-0.8bp lower across the curve. Advance U.S. GDP & weekly jobless claims headline the local data docket today, with a 7-Year Tsy auction also due.
  • Australian YM trades -1.5 & XM -4.0. Bills last -9 to +2 ticks through the reds. Cash ACGB yields sit 1.5bp-3.5bp higher across the curve. Australia's terms of trade came and went.

JAPAN: Foreign Investors Continue To Buy Japanese Equities

Japanese weekly international security flow data pointed to continued Japanese net selling of foreign bonds for another week, coming as core FI markets overseas continue to face downward pressure over inflation and hawkish central bank expectations.

  • Japanese investors were net purchasers of foreign stocks for a second week, buying the most since the week of Mar 4.
  • Foreign investors resumed their selling of Japanese bonds, breaking two consecutive weeks of net inflows.
  • Foreign investors were net purchasers of Japanese equities for a fourth consecutive week.
Latest WeekPrevious Week4-Week Rolling Sum
Net Weekly Japanese Flows Into Foreign Bonds (Ybn)- 1,155.6- 73.1-2,884.3
Net Weekly Japanese Flows Into Foreign Stocks (Ybn) 246.3 58.5-1,623.2
Net Weekly Foreign Flows Into Japanese Bonds (Ybn)- 1,508.0 1,225.4-744.8
Net Weekly Foreign Flows Into Japanese Stocks (Ybn) 595.1 406.23,219.9

FOREX: Yen Gets Hammered As BoJ Unveils Unlimited Bond Buying Plan

The yen tumbled as the Bank of Japan announced its plan to conduct unlimited fixed-rate bond purchase operations every business day "until it is highly likely that no bids will be submitted". The Board stuck to its existing ultra-loose policy settings, despite an upgrade to its inflation outlook, with price growth expected to slow in 2023. The decision to strengthen YCC enforcement signalled that policymakers prioritise working towards their inflation target over rapid yen weakening.

  • The yen showed some weakness even before the BoJ announcement. It went offered into the final Tokyo fix of the month, with Japan set to observe Golden Week holidays starting tomorrow.
  • USD/JPY cleared resistance from Apr 20 high/0.764 proj of the Feb 24 - Mar 28 - 31 price swing at Y129.40/44 and topped out just a handful of pips shy of the psychologically important Y130.00 figure. Renewed buying activity allowed the pair to print its best levels in two decades.
  • The greenback received a boost on the back of post-BoJ cross flows and easily outperformed its G10 peers. The U.S. dollar index (DXY) rallied to new cycle highs.
  • Reminder that the Riksbank is also due to announce its closely watched monetary policy decision today. The Swedish krona went offered ahead of the announcement, only the yen fared worse.
  • Today's data highlights include advance U.S. GDP & weekly jobless claims as well as flash German CPI. Comments are due from ECB's Wunsch & de Guindos as well as Norges Bank Gov Bache.

ASIA FX: Post-BoJ Impetus Hits Asia EM Currencies

Market reaction to the BoJ's monetary policy decision reverberated across Asia, as firm demand for USD/JPY pushed USD/Asia crosses higher.

  • CNH: Offshore yuan followed the yen lower, as the BoJ doubled down on bond purchases in defence of its cap on 10-Year yields. Spot USD/CNH run as high as CNH6.6379, its highest point since Nov 2020. The redback earlier ignored a slightly firmer than expected PBOC fix, with yuan reference rate set 36 pips below average sell-side estimate.
  • KRW: Spot USD/KRW extended gains post-BoJ and crossed above the KRW1,270.00 mark for the first time since the early days of the pandemic. FinMin Hong noted that officials are keeping an eye on FX markets and stand ready to take stabilisation steps if needed.
  • IDR: The rupiah retreated after Indonesia made a U-turn on the scope of its new restrictions on palm oil shipments. The authorities said that the rules will apply to crude palm oil after all, despite earlier suggesting that only certain refined products would be included.
  • MYR: Spot USD/MYR surged to new two-year highs on the back of broader market impetus, even as Malaysia prepares to east its Covid-19 curbs.
  • PHP: BSP Gov Diokno's recognition of the need to withdraw stimulus supported the peso early on, but the Philippine currency reversed gains on the back of post-BoJ impetus.
  • THB: Spot USD/THB extended its recent gains, printing best levels since 2017 as a result. The baht faced some additional headwinds as Thailand's industrial output unexpectedly shrank in March, with the previous reading revised lower.

EQUITIES: Higher As Meta Surprises, Targeted Support Pledged For Chinese Workers And Tech Companies

Virtually all Asia-Pac equity indices are bid following a somewhat mixed picture from Wall St., with positive spillover from Meta’s after-hours earnings beat adding to positive sentiment in China-based equities after authorities pledged another round of support.

  • To elaborate, China’s State Council announced measures to specifically support the growth of internet platform companies, sparking a surge in Hong Kong-listed tech giants such as JD.com (+2.6%) and Baidu (+3.6%). Measures were also announced to deliver cash handouts to a specific segment of unemployed individuals, albeit without further details on the payout amount etc. A note that unemployment in China released on 18 Apr came in at 5.8%, ahead of expectations and at its highest level since May ‘20.
  • The CSI300 correspondingly sits 0.4% better off at typing, on track to close higher for a second consecutive day following Chinese President Xi Jinping’s “all-out” declaration for infrastructure investment made on Tuesday. High-beta consumer staples again led gains, with earnings-driven momentum from large-cap Kweichow Moutai (+2.4%) providing tailwinds for another day.
  • The Nikkei 225 outperformed, dealing 1.2% firmer at typing after building on a positive lead after the lunch break on JPY weakness, with the move lower in the latter facilitated by the BoJ’s decision to hold rates steady while keeping YCC settings and asset purchases steady. A note that Japan retail sales data that crossed earlier in the session surprised to the upside as well, while industrial data broadly missed estimates.
  • U.S. e-mini equity index futures sit 0.1% to 1.3% higher at typing. Tech-focused NASDAQ contracts predictably led gains, catching a bid from Meta’s (+18.4% after hours) well-received earnings beat.
  • Looking ahead, Amazon and Apple are expected to report earnings after the NY bell later on Thursday.

OIL: WTI Revisits $100 As Dollar Rallies; Shanghai Cases Ease But Outbreak Expands Nationwide

WTI and Brent are ~$1.60 weaker at typing, operating a touch above Wednesday’s trough at typing. Both benchmarks have come under pressure as the USD (DXY) continues to trade a little below 5-year highs made on Wednesday in the NY session, while debate re: the trajectory of China’s current COVID outbreak has done the rounds in Asia.

  • To elaborate, fresh reported COVID cases in Shanghai have declined for a fifth day to ~10.7K, the lowest in over three weeks. The outbreak however continues to spread to other key population hubs, with the city of Hangzhou (home to several Chinese large-caps) implementing a mass testing regime and Beijing reporting the limited suspension of in-person classes. A note that this comes as other areas such as the port cities of Qingdao and Qinhuangdao have been reportedly placed under full/partial lockdown.
  • Keeping within the region, Sinopec has issued a forecast that crude demand in China would recover by end-Q2 in ‘22, led by predictions of “pent-up demand” once COVID case numbers recede.
  • Looking to the U.S., EIA inventory data on Wednesday offered a relatively mixed picture, with figures pointing to a build in crude and Cushing hub inventories, with a surprise drawdown in gasoline stocks and a decline in distillate stockpiles observed as well.
  • WTI and Brent futures largely rose off their session lows after the EIA data release, with events in China (re: demand destruction worry) Europe (re: possible sanctions on Russian crude and the cutting of Russian gas supplies to Europe) returning into focus.

GOLD: Sent Lower By King Dollar; Demand For Physical Gold Remains Elevated

Gold deals ~$4/oz lower at typing to print ~$1,882/oz, operating around session lows at typing.

  • To recap Wednesday’s price action, the precious metal closed ~$20/oz lower, coming under pressure from the USD (DXY) hitting five-year highs during the session, with a broad uptick in U.S. real yields observed as well.
  • May FOMC dated OIS now price in ~50bp of tightening for that meeting, although hikes implied for the June meeting has spiked to >75bp at writing (cumulative ~129bp priced for both months), facilitated by a ~25bp move in early Asia-Pac dealing. A note that this move comes as the cumulative pricing for calendar ‘22 continues to move lower throughout the week (~230bp at typing).
  • Elsewhere, the World Gold Council (WGC) released their quarterly trends report on Wednesday, highlighting that demand for physical gold had increased by 34% Q/Q for Q1, led by inflows into gold-related ETFs. This comes as known ETF holdings of gold have backed away slightly from one-year highs witnessed late last week, however remaining ~4% adrift of COVID-induced all-time highs seen in ‘20.
  • From a technical perspective, gold remains vulnerable after breaking below the bear trigger at $1,890.2/oz (Mar 29 low), opening the way for a further descent to $1,878.4/oz (Feb 24 low).

UP TODAY (Times GMT/Local)

DateGMT/LocalImpactFlagCountryEvent
28/04/20220600/0800**SE Retail Sales
28/04/20220600/0800***SE GDP
28/04/20220700/0900**SE Economic Tendency Indicator
28/04/20220700/0900***ES HICP (p)
28/04/20220700/0900EU ECB de Guindos Presents Annual Report 2021
28/04/20220730/0930**SE Riksbank Interest Rate
28/04/20220800/1000***DE Bavaria CPI
28/04/20220800/1000EU ECB publishes May economic bulletin
28/04/20220800/1000**IT ISTAT Consumer Confidence
28/04/20220800/1000**IT ISTAT Business Confidence
28/04/20220900/1100***DE Saxony CPI
28/04/20221200/1400***DE HICP (p)
28/04/2022-JP Bank of Japan policy meeting
28/04/20221230/0830*CA Payroll employment
28/04/20221230/0830**US Jobless Claims
28/04/20221230/0830***US GDP (adv)
28/04/20221230/0830**US WASDE Weekly Import/Export
28/04/20221400/1600EUECB Elderson Panels ECOSOC UN Forum
28/04/20221430/1030**US Natural Gas Stocks
28/04/20221530/1130**US NY Fed Weekly Economic Index
28/04/20221530/1130*US US Bill 08 Week Treasury Auction Result
28/04/20221530/1130**US US Bill 04 Week Treasury Auction Result
28/04/20221700/1300**US US Treasury Auction Result for 7 Year Note

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