JPY Swaps: More 3y bid as ultra-loose policy may be scaled back; Curve steeper

Japan Shrine
Better-than-expected trade data and expectations about scaling back of the ultra-loose policy have backed paying in JPY swaps.

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  • Japan’s trade deficit widened to record, but tighter than forecast

  • More 3y bid as ultra-loose policy may be scaled back

  • Future-led 7y bid; Curve steeper

  • New issues


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Japan’s trade deficit widened to record, but tighter than forecast

JGB future slumped by close to 30-ticks soon after market open after some stronger-than-expected domestic data.


Official data released earlier today showed that Japan’s trade deficit widened from JPY1.452trn in December to its record level of JPY3.497trn. The move was driven by the seasonally lowered demand due to the Chinese New Year, and as the global economy had not recovered yet. Nevertheless, the deficit was still narrower than the economists had forecast, due to slower-than-expected imports but stronger-than-expected exports growth.


The lead bond future then trimmed losses after a good 5-year auction.


The MOF sold JPY2.0329trn worth of its JPY2.1trn 5-year 0.2% JGBs (Number 156) at tender. The auction drew bids worth 3.98 times, up from 3.66 times last month. Average yield was 0.216%. The tail tightened from 0.03 last month to 0.00.


JGB future was marked 19-ticks lower at 146.65 in early-afternoon Tokyo trading. The yield on the benchmark 10-year JGB was down 0.3bp to 0.498%.



More 3y bid as ultra-loose policy may be scaled back

A market participant noticed paying at the short-end, and reckoned it has been backed by expectations about the scaling back of the ultra-loose monetary policy after the nomination of hawkish Kazuo Ueda by the Prime Minister. Indeed, forward swaps are currently pricing in the scrap of negative-rate policy by July, followed by the beginning of a tightening cycle.


“Inflation in Japan has been rising but we are not as bad as other western countries. There is still buffer and players are still unsure if the new BOJ chief would or should start a tightening cycle now,” the source said.


3-year traded mostly around 3.5bps higher of 0.3% before being marked almost unchanged at time of writing.



Future-led 7y bid; Curve steeper

Elsewhere there has been some future-led paying in 7-year. It traded between 0.5-1bp higher although there were also trades at up to 4bps higher of 0.655% in mid-morning domestic trading.


Further up the curve, 10-year traded up to a basis point higher of 0.84% near market open, and was last traded 0.5bp higher of 0.835%.


2s/7s and 2s/10s swaps steepened up by 0.25bp to 44bps and 65.5bps respectively.



New issues

  • Shimizu Corp sold via Nomura JPY20bn in 0.55%, February 24, 2028 bonds.