Pressure Due From CPI & Spill Over Via Core Bond Moves

Weakness in core global FI markets applied light pressure to JGBs during the overnight session, with the contract finishing post-Tokyo trade -7 vs. settlement levels, a little above lows after mimicking moves in U.S. Tsys.

• Firmer than expected domestic CPI data has been registered this morning, with the 3 major metrics all topping consensus estimates by 0.1ppt, as the major Y/Y inflation rates moved 0.6-0.7ppt higher vs. previous readings.
• This, coupled with the weakness observed in core global FI markets, may result in some steepening of the JGB curve in early Tokyo trade.
• A reminder that we have seen some flattening of the curve in recent sessions, with demand for super-long JGBs emerging. This was likely spearheaded by domestic participants given the lack of viable international alternatives on offer at the minutes (with elevated FX-hedging costs and ongoing market vol. limiting offshore capital allocation).
• Today’s CPI readings won’t be a gamechanger for the BoJ, with the Bank committed to maintaining its ultra-loose policy settings, as it looks to foster meaningful wage growth in a bid to develop demand-pull, not cost-push, inflation.
• 3-month bill supply is the only point of note on the domestic docket during the remainder of the day.