The BoJ sharply reduced their purchases of.....>

JGBS: The BoJ sharply reduced their purchases of T-Bills in today's operation to

Y250bln from Y1.25tln last week.

- Supply/demand conditions in T-Bills appear tight, foreign investors have been

aggressive buyers of bills according to the weekly MOF data, foreign investors

purchased a huge Y4.53tln which denotes the biggest net purchase in 3.5 years.

- Wider USD/JPY basis swaps have been apportioned much of the blame for tight

conditions, surging USD demand into year end has seen hedged UST yields for

Japanese investors plummet and make JGB yields more attractive to both domestic

and foreign investors. The weekly MOF flow data illustrates this, net buying of

JGB's by foreigners printed Y844.2bln, while Japanese investors sold foreign

bonds to the tune of Y487.6bln.

- Demand from foreign investors is also evident in the long end through widening

JSCC/LCH spreads which have hit their widest in over a year in the 10-Year

sector while 30-Year spread is just shy of its all time high at 8.75bp. MNI

sources note that foreign players are on the bid in anticipation of BOJ YCC

adjustment in 2018, a theory that is gathering momentum.