RTRS Sources Play Down Near-Term BoJ Pivot, Lending Some Support To Bonds

Core global bonds find a bit of a base in recent trade. A RTRS sources piece re: the BoJ may be helping.

• The sources noted that “recent weakness in consumption has emerged as a fresh source of concern for Bank of Japan policymakers who are eyeing an exit from negative interest rates, suggesting market expectations of an imminent rate hike may be over-blown.”
• This comes in the wake of sizable FX and FI market (including wider swap spreads) reaction to the well-documented recent comments from BoJ Governor and Deputy Governor Himino.
• However, the sources stressed that Ueda's remarks, “which came in response to a lawmaker's question on the challenges he has faced since becoming governor in April, was taken out of context by markets and was not meant to signal an imminent policy shift.”
• The sources suggest that the timing re: an exit from NIRP remains “highly uncertain given Japan's fragile economy.”
• They went on to suggest that “the BOJ will keep dropping subtle hints that an end to negative rates may be nearing but won't signal much on the timing.”
• General market reaction has not been sizable, with JGB futures only seeing a modest uptick post-release.