The BoJ May Have To Up It’s Defence Of YCC

JGB futures shed 34 ticks in overnight dealing, with the U.S. CPI-driven repricing of FOMC expectations front and centre, as the contract went out just above the base of its post-Tokyo range.

• Local reaction will be eyed and may result in greater take up at the BoJ’s standard fixed rate operations, what with 10-Year JGB yields operating so closely to the upper end of the BoJ’s permitted trading band.
• BoJ Rinban operations covering 1- to 3-, 5- to 10- and 25+-Year JGBs headline domestically today, with eyes on any tweaks to enforce the BoJ’s YCC setting given Tuesday’s moves in Tsys.
• The dynamic in the longer end of the curve will also be eyed given the twist flattening in U.S. Tsys and recent signs of demand on the part of domestic life insurers and pension funds in this area given outright yield levels.
• Core machine orders data and final industrial production readings will also cross.
• Note that early Tokyo comments from Japan’s top currency official, Kanda, pointed to all options being on the table when it comes to addressing very sudden FX moves. This came as USD/JPY threatened to break above the Y145.00 mark.