What Will The BoJ Do In Q2?

JGB futures followed the broader swings in core FI markets in post-Tokyo dealing, softening on the European inflation impulse, before rallying on the re-introduction of fresh uncertainty re: the Russia-Ukraine situation & spill over from U.S. Tsy-specific supportive factors (flagged earlier). Still, the contract wasn’t quite able to pare its early post-Tokyo losses come the overnight close, finishing -4 vs. Wednesday’s settlement.

• This came after Wednesday’s BoJ-driven richening, with the Bank’s adjusted & unscheduled Rinban operations, in addition to the continued presence of fixed rate operations, driving a bid in the space (note that yesterday’s fixed rate ops drew 0 offers), as the BoJ re-affirmed its dovish credentials. Still, the Tokyo afternoon bid, derived from the unconventional step of announcing a second round of Rinban in one day, had faded into the Tokyo close. 10-Year JGB yields closed Wednesday trade at ~0.225%, 2.5bp off the top of the BoJ’s permitted trading range.
• Flash industrial production data and 2-Year supply headline the local docket during regular Tokyo hours, but more focus is set to fall on the BoJ’s quarterly Rinban schedule, which will be published at 17:00 Tokyo/09:00 London. Given the BoJ’s clear support of its current YCC settings many expect the BoJ to increase the size of its Rinban purchase in Q222, via larger operations and/or more frequent purchases. Still, this doesn’t mean the BoJ will not face issues in defending its YCC strategy further down the line e.g. if global yields rise further or if it decides to reduce the cumulative size of its Rinban operations at some point.