Pressured By Speculation Surrounding Changes To BoJ Policy Accord

JGB futures are -11 into the bell, with the major cash JGB benchmarks running little changed to 6bp cheaper as the curve steepens (10s are capped by the BoJ’s YCC settings).

• The BoJ rumour mill was in full effect over the weekend, with Kyodo sources noting that the Japanese government is set to revise the BoJ accord that commits the Bank to achieving 2% inflation at “the earliest possible date.” The piece suggested that the new mandate would be more flexible around the 2% goal, which could potentially become a medium- or longer-term target. Kyodo went on to note that the matter is expected to be discussed with the new BoJ Governor (Kuroda’s term comes to an end in April). This resulted in weakness for JGBs and swap spread widening across most of the curve during the Tokyo morning.
• Japanese Chief Cabinet Secretary Matsuno subsequently pushed back against the need for a change in the accord, which put a bit of a bid back into JGBs in the early rounds of afternoon dealing, although that impulse has faded as we work towards the close.
• Note that our policy team has flagged its understanding that “the Bank could discuss changes to its easy policy framework as early as June, with a mid-year timeframe allowing the new Governor time to conduct a policy review and assess wages growth.”
• Sub-2.00x offer/cover ratios across the BoJ’s 1- to 25-Year Rinban operations also helped the early afternoon bid.
• The latest BoJ monetary policy decision headlines on Tuesday, with no changes expected (our full preview of that event will cross in the next few hours).