JPY Swaps 5-10y offers after slightly dovish Ueda

• JGB future rallies on dovish Ueda

• Good 5-10y offers; 5s/10s flatter

Click here for SDR JPY IRS trades

JGB future rallies on dovish Ueda

JGB future opened marginally weaker, but rose soon after with stronger upward momentum seen since mid-morning domestic trading as the incoming BOJ Chief Ueda, who is famous for being hawkish, said the current monetary easing approach in Japan is appropriate as he didn’t think the high inflation would last. His comments were despite of today’s data which shows that inflation in Japan shot up to its 41-year high of 4.3% in January, up from 4% in the previous month although matching economists’ expectation. Ueda observed that the country’s rising inflation has been caused by cost-push factors, with a strong contribution by the energy prices. However, the pace of import prices has already started to slow. He also added that the BOJ will stop massive bond buying should the 2% inflation target is met.

In mid-afternoon Tokyo trading JGB future was up 27-ticks at 146.57, and the yield on the benchmark 10-year JGB was unchanged at 0.5%.

Good 5-10y offers; 5s/10s flatter

Traders said Ueda’s comments were a bit of a surprise, and so it triggered some receiving in swaps. 10-year, for example, traded down to below 0.845% at mid-day, after some earlier paying at 0.89% at the open. These compared to those traded around 0.865% near market close on Wednesday.

Slightly down the curve at the mid-sector, 5-year has been offered and traded mostly in a tight range around 0.4375% on the day, down from previous close of 0.4525%.

5s/10s swaps flattened out by 0.25bp to 40.5bps.