JPY Swaps: Decent flow ahead of BOJ call

BOJ side
There has been decent trade in JPY swaps and forwards as the market awaits today's BOJ monetary policy announcement.

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  • Forward flow; Spreads narrow

  • BOJ invests heavily to cap yield rise

  • No policy shift expected

  • New issues


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Forward flow; Spreads narrow

The JPY rates market is trading a little firmer today and in early afternoon Tokyo trading the JGB future is 10-ticks higher at 148.36 and the benchmark 10-year bond yield is about 0.25bp lower at levels around 0.2425%


Trade flow in the swap market has picked up today as the market awaits the BOJ announcement later today.


In the short-end of the curve 1- and 3-year swaps have traded around 0.0425% and 0.145%. In the belly of the curve there have been delays in 5-, 6- and 7-year swaps at levels around 0.2325%, 0.29% and 0.335%.


Long-end trades have come in 10-year swaps around 0.495%, 12-years around 0.585%, 15s around 0.73% and 20s in a 0.92-0.94% range.


Forward space has seen more interest in the 3-month expiries. The 3m5y, 3m7y, 3m10y and 3m20y forwards at levels around 0.29%, 0.38%, 0.47% and 0.97% respectively. Beyond that there has also been some flow in the 2y2y structure around 0.26-0.2625%.


Swap spreads have narrowed (become more negative) as bond have underperformed today. Longer swap spreads are marked as follows: 10-years 23.75bps, 20-years -3.25bps, 30-years -18bps.



BOJ buys bonds to cap yield rise

On Wednesday the BOJ bought JPY1.26trn worth of JGBs in an unscheduled unlimited bond purchase operation targeting the 5-10 year and 10-25 year sectors. This was the largest daily purchase amount since June.


The BOJ’s Yield Curve Control measure works to a 0% target for the 10-year bond yield with a +/- 25bps comfort range. Last week the yield hit 0.26% and this triggered yesterday’s central bank response. Price action was choppy around the operation yesterday but yield is currently marked just below 0.25%.



No policy shift expected

Today the BOJ will bring its two-day board meeting to a close and make its monetary policy announcement. No change in policy direction is expected just now but pressure is growing.


Global monetary tightening momentum and rising domestic inflation pressure are factors likely to eventually push the BOJ to begin normalising its policy settings. However this is still seen as being some way off and any move today would come as a surprise.



New issues

  • Japan Finance Organization for Municipalities raised JPY25bn by selling 5- and 7-year Domestic Bonds through Mizuho. The issuance was split as follows:


    • JPY5bn 0.18% Nov 29, 2027.

    • JPY20bn 0.305% Sep 27, 2029.