Richer After Q4 GDP Signals Technical Recession

In Tokyo morning trade, JGB futures are sharply richer and at session highs, +38 compared to settlement levels, after the release of Q4 GDP data.

• Japan's Q4 GDP was weaker than expected, with the economy in a recession for the second half of 2023 at least based on the rule of 2 consecutive quarters of negative GDP growth. Annualized q/q GDP fell -0.4% versus a +1.1% forecast. Q3 was also revised lower, to -3.3% (from -2.9%). The q/q sa outcome was -0.1% against a +0.2% forecast and -0.8% prior.
• At face value, the data should diminish BoJ prospects for a near-term shift away from NIRP (say at the March meeting). As noted above, the weakness in the expenditure components was quite broad-based.
• (Bloomberg) -- Japan’s economy unexpectedly contracted for a second quarter at the end of 2023 due to anaemic domestic demand, slipping into recession and clouding the BoJ’s path toward ending its negative interest rate policy. (See link)
• Cash JGBs are richer beyond the 1-year, with the futures-linked 7-year leading (yield is 2.3bps lower). The benchmark 10-year yield is 2.1bps lower at 0.732% versus the Nov-Dec rally low of 0.555%.
• The swaps curve has bull-flattened, with rates 1-3bps lower. Swap spreads are tighter.