Off Best Levels As BoJ's Noguchi Outlines Potential Triggers For Policy Tweaks

Cash JGBs have twist steepened, moving away from best levels in afternoon trade, as global core FI markets nudged away from best levels of the day.

• Cash JGBs run 2.5bp richer during to 1.5bp cheaper across the curve, after initially drawing support from Tokyo’s reaction to Fed Chair Powell’s latest address.
• 7s outperformed on the curve owing to the bid in futures, as local participants extended the overnight bid in that contract. Futures are +26 into the close, comfortably off of best levels.
• It would seme that comments from BoJ’s Noguchi, who discussed potential parameters that could trigger BoJ policy tweaks, added an idiosyncratic input into the move away from best levels. There wasn’t much in the way of new information in the comments themselves, while Noguchi also played down the idea of a policy tweak in the near term (albeit while pointing to a data-dependent stance).
• There was no reaction to local data.
• We saw a very well received 10-Year JGB auction in which the tail vanished and low price marginally topped wider dealer expectations. Meanwhile, the cover ratio moved to the highest level observed at a 10-Year JGB auction since the early 2000s. It would seem that participants were willing to lean on the BoJ’s forward guidance and YCC settings here, with the auction clearing at the upper boundary (in yield terms) permitted under the BoJ’s YCC.
• Looking ahead, the latest round of BoJ Rinban operations headline the domestic docket on Friday.