JPY Swaps: Kuroda to stand pat? Swaps bid as Lower House approves Ueda

BOJ Governor 1
JPY swaps saw paying interest in the afternoon as the Lower House has approved Ueda as the next BOJ Governor. BofA expects Kuroda to stand pat.

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  • Kuroda to stand pat – BofA

  • GDP disappoints; JPY rates weaker as Lower House approves Ueda

  • 10y bid emerges after earlier offers

  • New issues


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Kuroda to stand pat - BofA

The debate over the next BOJ moves continued. BofA said in a strategy piece released on Wednesday that Kuroda would likely stand pat at his last MPM due to the following reasons:


  • A widening of the YCC band may result in 30-50bps of rise in 10-year JGB yield, but there has been insufficient economic data to justify it.


  • USD yields have been rising and the BOJ would probably prefer to wait until US data weakens and falling long-term yields.


  • The BOJ will likely incline to make a change shortly before the fiscal year-end.


  • Kuroda will try to defend his policy before his departure.


Nevertheless, BofA believes a change in the YCC is just a matter of time, and the bank currently forecasts this to happen in June when the followings will be adjusted:


  • Widening of the YCC band to +/-100bps.

  • Shortening the duration of the YCC long-rate target from the current 10-year point to 5-year, while keeping the level of the target and the permissible unchanged at zero% +/-50bp.


At the conclusion of this month’s MPM, the central bank may revise the rules to its Securities Lending Facility to address ongoing worsening in JGB market Functioning, according to BofA. Finally, BofA reiterated that bigger changes to the policy framework, including the removal of NIRP and YCC, will be delayed until mid-2024 or later as it will be contingent on further improvements to the output gap and underlying inflation or 2) require a much lengthier review process if the changes are to be justified on side effect/sustainability concerns.



GDP disappoints; JPY rates weaker as Lower House approves Ueda

JGB future was firmer at the first half of the morning session amid weak GDP data.


Official data released earlier today showed that GDP in the 4th quarter grew by an annualised 0.1%, against a preliminary estimate of a 0.6% expansion and much lower than economists' median forecast for a 0.8% rise.


The lead bond future then erased gains as the effect of hawkish Powell kicked in, and after the lower house approved hawkish Kazuo Ueda as the next BOJ Governor, with Upper House to vote Friday. JGB future finally closed the day 29-ticks lower of 146.5. The yield on the benchmark 10-year JGB was marginally lower at 0.498%.



10y bid emerges after earlier offers

In swaps there has been good amount of trade flow at the belly of the curve, backed by good paying interest there. 7-year outright traded up to 2bps higher of 0.6375% while 5-year went through up to about 4bps higher of 0.4575% in late-afternoon domestic trading. Surprisingly, 10-year has been busily traded too. It was offered down a basis point at 0.8375% near market open, but then traded up to 0.89% in the afternoon session when the cash bond market was sold off.


Elsewhere 2-year US treasury yield shooting to above 5% has prompted a selloff in the JPY, backing paying in 2-year at up to 2.5bps higher of 0.1875% after lunch break.


2s/10s swaps steepened up by 0.75bp to 68.75bps while 10s/20s flattened out by 1.5bps to 41bps.



New issues

  • Aichi Prefecture issued JPY10bn in 0.750%, February 24, 2033 bonds at JGBs + 25bps.


  • Chiba City priced JPY5bn in 0.750%, March 20, 2032 bonds at JGBs + 25bps.


  • Electric Power Development Co Ltd sold JPY10bn in 0.872%, February 31, 2029 bonds. Priced at JGBs + 50bps.


  • Fukuoka-Kitakyushu Expressway raised JPY7bn via selling the following bonds:


    • JPY2bn, 0.760%, March 18, 2033 at JGBs + 26bps.

    • JPY5bn, 0.601%, February 19, 2030 at JGBs + 20bps.


  • Haseko Corp sold JPY30bn worth of bonds as follows:


    • JPY10bn, 0.569%, March 15, 2028 at JGBs + 35bps.

    • JPY20bn, 0.290%, February 13, 2026.


  • JFM priced JPY24bn in 0.750%, March 28, 2033 bond at JGBs + 25bps.


  • Nagoya City issued JPY15bn in 0.750%, March 24, 2033 bonds at JGBs + 25bps.


  • Shizoka Gas Co sold JPY5bn in 0.990%, February 15, 2033 bonds.


  • Tokyo Metropolitan Government priced JPY30bn in 0.740%, February 20, 2032 bonds at JGBs + 24bps.