### Scarcity could become (even more of) an....>

JGBS: ### Scarcity could become (even more of) an issue for JGB's. In July the

BoJ appeared to concede to a deflationary mindset, the bank delayed timing for

hitting their 2%, as they have done at every "Outlook Report" since October

2014. The bank now predict they will hit the target "around FY 2019". This

deterioration in inflation expectations coincides with the appointments of

Hitoshi Suzuki and Goushi Kataoka to the BoJ, replacing perennial dissenters on

the BoJ board. Far from being a like for like swap the hawks have been replaced

by the ultra-dovish, both are seen as vocal supporters of the BoJ's QQE

programme, Kataoka in particular has said in the past he is in favour of

additional easing. In June the BoJ's purchase operations totalled Y7.89tln of

JGB's, equivalent to 80% of the bonds issued that month. BoJ data shows that

5-10 Year JGB's at one point saw purchases at 101% of JGB's that month, and this

was before the BoJ were forced to increase operation sizes in July. The squeeze

is evident elsewhere with repo rates being squeezed hard daily in certain issues

with dealers reporting difficulty making markets, forcing the BoJ to supply

Y7tln to repo traders under their SLF in the first 4 days of this week.