JGBS: Can Futures Test 127.00 Upside? BoJ Mins, 10yr Sale In Focus

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• RES 3: 133.32 - High Mar ‘26
• RES 2: 130.66 - Low Jan 21 
• RES 1: 127.07/128.42- 50-dma (cont) / High Jun 15 
• PRICE: 124.23 @ 16:14 BST Oct 05
• SUP 1: 124.00 - Low Sep 2
• SUP 2: 123.60 - 2.0% 10-dma envelope
• SUP 3: 121.49 - 50.0% retrace of the 1990 - 2020 major bull leg 

Downside pressure resumed in JGB futures on the back of the inflationary pressures evident in the recent US PPI and CPI data and as markets settle after the BoJ rate hike. For now, the trend structure remains bearish and the latest downleg resulted in the contract piercing support at 125.91, the Aug 17 low. This move lower confirms a continuation of the primary downtrend. Key near-term resistance is 128.42, the Jun 15 high. Clearance of this hurdle is required to signal a short-term reversal.

Yen ended Monday trade little changed versus the USD, slightly outperforming most of the majors. The pair tracks close to 157.90 in early Tuesday trade, after a 157.44-158.30 range for Monday trade. Broader USD sentiment was supported, as EUR/USD weakness remained in focus (amid political and fiscal headwinds), but oil futures finishing lower and US cash equities finishing in the green helped temper dollar upside.

• For USD/JPY technicals a bull cycle in USDJPY remains in play and recent short-term weakness appears corrective. The pair continues to trade above the 20-day EMA, at 157.28. A clear bearish break of the average would undermine the recent bull leg and reinforce a possible reversal signal on Sep 25 - a bearish engulfing candle. For now sights are on key resistance is 159.04, the Sep 24 high.
• The local data calendar is empty today, but we have BoJ Governor Ueda speaking. Focus will be on BoJ tightening risks into year end. Currently the market gives little chance of an Oct rise, while Dec OIS pricing has an implied rate of 1.44%, versus the current effective rate of 1.227% (a full 25bps hike is priced for the Jan 2027 meeting).   
• Via our Tokyo based policy team from late last week: The avoidance of any acknowledgement that inflation is above target by Bank of Japan Governor Kazuo Ueda is aimed both at averting potential criticism from Prime Minister Sanae Takaichi and at keeping good relations with her government ahead of key appointments to the BOJ board including that of his own successor, MNI understands. Ueda’s stance has caused some confusion in markets, given clear signs that underlying inflation is already above 2%, despite the BOJ’s insistence that it is still only approaching 2% as it withdraws some monetary accommodation.
• The local data calendar is empty today, with Aug labor cash earnings out tomorrow.
• Also note the following in the option expiry space for NY cut later: Y154.00($1.8bln), Y156.00($3.1bln), Y160.00($500mln)