STIR: BOJ Dated OIS Firmer Than Pre-Dec MPM Levels
BoJ-dated OIS pricing has shifted significantly since mid-January, following remarks by Deputy Governor Ryozo Himino on January 14. Himino stated, “At the monetary policy meeting to be held next week, the board will discuss whether to raise the policy rate or not.” He also highlighted the momentum of domestic wage growth and the potential impact of U.S. President-elect Donald Trump’s policies.
- Governor Ueda reinforced this sentiment the following day in a speech to the Regional Banks Association of Japan, further fueling expectations of a policy shift.
- Additionally, comments from Economic Revitalization Minister Ryosei Akazawa on January 14 and Finance Minister Katsunobu Kato the day after signaled support for a potential rate hike. Both ministers indicated they had no intention of opposing a January increase, strengthening the perception that a hike is imminent.
- Policymakers, including Governor Kazuo Ueda and the two deputy governors, will form their final view after monitoring market moves and their background on Friday, MNI believes.
- Current OIS pricing is flat to 8bps firmer than pre-December MPM (Monetary Policy Meeting) levels, with January leading.
- Market expectations currently indicate: a 94% probability of a 25bp hike in January; a cumulative 96% chance by March; and a full 25bp increase by May 2025.
Figure 1: BOJ-Dated OIS – Today Vs. Pre-BOJ MPM (December)
Source: MNI – Market News / Bloomberg
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STIR: BOJ Dated OIS Slightly Softer Than Pre-Dec MPM
BOJ-dated OIS pricing is marginally softer than pre-Dec MPM levels.
- Nevertheless, pricing remains 3-13bps firmer beyond January versus pre-October MPM levels, with the September/October 2025 contracts showing the strongest gains.
- Market expectations currently indicate: a 37% probability of a 25bp hike in January; a cumulative 95% chance by May; and a full 25bp increase not fully priced in until June 2025.
- A full 25bp hike had been priced by May before the December MPM.
Figure 1: BOJ-Dated OIS – Today Vs. Pre-BOJ MPM (October)
Source: MNI – Market News / Bloomberg
JGB TECHS: (H5) Shallow Correction
- RES 3: 149.55 - High Mar 22 (cont)
- RES 2: 147.74 - High Jan 15 and bull trigger (cont)
- RES 1: 144.48/146.53 - High Nov 11 / High Aug 6
- PRICE: 142.24 @ 16:29 GMT Dec 23
- SUP 1: 141.88 - 1.618 proj of the Aug 6 - Sep 3 - 9 price swing
- SUP 2: 141.56 - 1.764 proj of the Aug 6 - Sep 3 - 9 price swing
- SUP 3: 141.05 - 2.000 proj of the Aug 6 - Sep 3 - 9 price swing
Markets slipped on the hawkish Fed, touching 141.87 on the way lower before rebounding back to flat on the dovish BoJ decision. Medium-term trend signals on the continuation chart continue to point south. A resumption of the trend would pave the way for a move towards 141.88 and 141.56, Fibonacci projection points on the continuation chart. A stronger recovery would open 144.48, the Nov 11 high. Further out, key resistance is at 146.53, the Aug 6 high (cont).
JGBS: Futures Weaker Overnight With US Tsys, BOJ Minutes Due
In post-Tokyo trade, JGB futures closed weaker, -9 compared to settlement levels, after a heavy NY session for US tsys. Benchmark yields finished 3-7bps higher, with the 7-year leading.
- Projected US rate cuts into early 2025 were steady to slightly lower vs. yesterday’s open (*) as follows: Jan'25 steady at -2.1bp, Mar'25 -11.7bp (-13.7bp), May'25 -16.0bp (-18.8bp), Jun'25 -23.4bp (-25.3bp).
- Little reaction to a flurry of mixed data: November posted improved home sales figures compared with a soft October, but revised New home sales came in roughly as expected at 664k on a seasonally-adjusted annualized rate, up from 627k prior (upwardly revised from 610k), following on from data showing a 4.8% M/M increase in existing home sales in November to the highest level since March at 4.15M.
- Headline durable goods orders figure of -1.1% M/M, the "miss" vs -0.3% expected was offset by an upward revision to the prior growth reading to 0.8% from 0.3%. Transportation equipment - a typically volatile category - led the decline, falling -2.9% M/M, with nondefense aircraft/parts down 7.0%.
- Today, the local calendar will see BOJ Minutes of Oct. Meeting and Dept Store Sales alongside an Auction for Enhanced-Liquidity 15.5-39 YR.
