JPY Swaps: RBC, DB see a BOJ pause; 10y given; Early 7y bid

RBC and DB believe that the BOJ would not make any policy shift this time. 10y has been offered and there was some light paying in 7y in the morning.

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  • RBC, DB see a BOJ pause

  • Arbitragers take action amid massive BOJ buyback and lending program

  • 7-10y given, 7s/10s flatter

  • New issues


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RBC, DB see a BOJ pause

The BOJ monetary policy meeting began today. Market participants all believe that the BoJ policy announcement tomorrow would be the most anticipated for years and, as investors and market participants have all positioned for further adjustment or removal of the YCC target.


Analysts from RBC, however, are in favour of no change this month although it would be a close call. Despite the distortion in the curve, the team believes that the central bank would give the December change time to work before moving again. “The latest BoJ intervention is probably largely fighting a build-up of speculative JGB shorts outside Japan. It seems unlikely to us that the BoJ would want to “endorse” moves that are speculatively driven,” it explained said in a strategy piece released on Monday. 


The Japanese economists from DB also expects no change to policy but sees the risks to that increasing, with a wider band, shorter maturity target or change to funds-supplying operations possible.


Barclays has predicted a policy change within the next few months. “With the US bond market priced for Fed cuts to start in late 2023, the BoJ will see its window of opportunity to be primarily in H1 of this year. A shift from the current YCC seems just a matter of time,” it said in a research piece released yesterday.



Arbitragers take action amid massive BOJ buyback and lending program

Elsewhere, the market is concerned about the amount of JGBs that the central bank has bought. Indeed, some JPY12trn worth of purchase over the past four days is a massive move. The BOJ’s market share of the JGBs would likely jump to 53% this month. At this pace, the BOJ would run out of JGBs to buy.


The very low amount of bonds left in the market and the increase in BOJ leading of the securities also suggest arbitragers maybe borrowing bonds from the central bank to engage in a trading strategy that involves short positions on cash bonds and long positions on futures. Indeed, bond future was firmer on Monday after five consecutive days of sharp selloff. This, together with strong demand for BOJ’s lending program which jumped by more than 50% on Monday, suggests that such trade has been in place.


JGB future continued to rally today and was 24-ticks higher at 144.88 in mid-afternoon Tokyo trading. The yield on the benchmark 10-year JGB was half a basis point lower at 0.503%.



7-10y given, 7s/10s flatter

In swaps, 10-year saw offered-side flow at down to almost 5bps lower after lunch break, as the rally in the underlying JGBs has prompted receiving interest in swaps.


Slightly down the curve, 7-year was paid up by 3bps in the morning before receiving at down to 2.5bps lower of 0.71% after mid-day. It was last seen changing hands about 1.25bps higher, flattening 7s/10s swaps by 0.75bp to 15.75bps.



New issues

  • Central Nippon Expressway raised JPY 44bn via selling 0.628%, January 21, 2028 bonds at 31bps over JGBs.


  • Tokyu REIT Inc issued via Daiwa JPY3bn in 1.074%, January 21, 2033. Priced at JGBs + 57bps.