Off Best Levels As Potential BoJ Deputy Governor Outlines View

After an early afternoon bid, seemingly linked to some light richening in U.S. Tsys and subdued offer to cover ratios at today’s Rinban operations (1.4-2.0x, across 3- to 25+-Year JBGs), JGBs have now backed away from best levels, leaving futures +17 and cash JGBs running 0.5-2.0bp richer, with the super-long end lagging the wider bid. Swap rates are also off session lows, with swap spreads now essentially flat across the curve.

• The driver for the move away from best levels? That would be comments from Japan Research Institute Chair Yuri Okina, who noted that there needs to be a rethink of BoJ and government cooperation, as she outlined her preference for the Bank’s inflation target to be shifted to a longer-term goal (as press reports have suggested will be the case). Okina also identified a desire to foster bond market normlisation and a recovery in the function of interest rates within the monetary policy framework. Note that there is speculation Okina could become a Deputy Governor at the Bank after the impending leadership reshuffle.