### The recent drop in JGB yields after the....>

JGBS: ### The recent drop in JGB yields after the buying streak, which has been

attributed to an unwind of flattener shorts established in June, has garnered

speculation that the 5-10 Year purchases could be reduced further today, with

one source speculating a drop to the Y410bln level that was the norm up until

January. 

- This would be a bold move from the BoJ after reducing purchases to Y440bln

below the usual Y450bln after the jump to Y500bln in July. But BoJ purchases did

rise to Y7.4tln from Y7.2tln in July, bucking the decreasing trend so far in

2017 and comes as supply and demands are tight with the BoJ seeking to keep

ammunition for the YCC in reserve should the economic climate change, and the

BoJ will be emboldened by the sanguine nature with which the market digested the

cut last week.

- One factor that could restrain the BoJ is yen strength, if the BoJ were to cut

the purchases it would likely result in a stronger yen, with USD/JPY already

below 110.00 and thus uncomfortably low for the BoJ this could dissuade a cut in

purchases.