JGBS: Cash Bonds Hold Their Bull-Flattener On Data-Light Session

Bank Indonesia’s (BI) December decision is announced later today and analysts are split as to the outcome. 21 of respondents on Bloomberg are expecting rates to be left at 6.0%, while 13 are forecasting a 25bp cut following the first one in September. We expect policy to be unchanged given that BI is currently focusing on FX and financial stability and USDIDR has been trading above 16000 all week (see MNI BI Preview).

• In the November statement BI said that “the focus of monetary policy is on Rupiah stability in response to increasing geopolitical and global economic uncertainty”. The currency has weakened partly due to the stronger US dollar following Trump’s US election win but there are also concerns about the impact of increased protectionism on Asian economies and the fiscal outlook under new Indonesian President Prabowo.
• USDIDR is currently around 16118, up 1.9% since the November 20 BI meeting and 0.8% since last Friday. It is also weaker in trade weighted terms with the JP Morgan IDR NEER down 1.0% since the last meeting.
• The last time USDIDR was above 16000 was in August but it was trending lower then, whereas it is currently trending higher, which is likely to worry BI.
• BI can focus on FX as it has other tools to support growth apart from rates. It has already been buoying the economy with macroprudential policies to boost lending and jobs. Q3 GDP slowed slightly to 4.9% y/y from 5.0%.
• While headline inflation is close to the bottom of the 1.5-3.5% BI target band, core is trending gradually higher and BI expects both to stay in the corridor next year.

Gold is slightly weaker ahead of the Federal Reserve’s upcoming rate decision, with traders watching for clues about next year’s monetary policy path. Gold is 0.1% lower in today’s Asia-Pac session , after closing 0.2% lower at $2646.83 on Tuesday.

• While markets widely expect officials to announce another quarter-point cut, what will happen in 2025 isn’t clear as policies by the incoming Donald Trump administration may hinder further easing. Lower rates are typically positive for gold, which doesn’t pay interest.
• There are varying opinions on the path of rates ahead and the number of cuts that the Fed will signal in its Dot Plot for 2025. We go through what to watch for in detail in our MNI Fed Preview here.
• The precious metal has risen by more than 28% this year, putting it on track for its biggest annual gain since 2010. Its strength has been supported by monetary easing in the US, safe-haven demand and sustained buying by the world’s central banks. 

JGB futures are stronger, +10 compared to settlement levels.

• Outside of the previously outlined trade balance data, there hasn't been much by way of domestic drivers to flag.
• The focus remains on tomorrow’s BoJ policy decision, with the broad consensus expecting no change to policy settings.
• Towards late November, market pricing for the meeting outcome stood at over 60% in terms of a 25bps hike priced in. This has fallen back sharply though as we have gotten closer to the meeting date, last around 14% probability priced for a full rate hike.
• In terms of what has shifted sentiment around the likely meeting outcome, it has more reflected press articles, along with BoJ commentary, as opposed to shifts in data outcomes. (See MNI BoJ Preview here)
• Cash US tsys are ~1bp richer in today’s Asia-Pac session ahead of today's FOMC policy decision.
• Cash JGBs are slightly richer across benchmarks. The benchmark 10-year yield is 0.1bp lower at 1.083% versus the cycle high of 1.108%.
• The swaps curve has twist-steepened, pivoting at the 20-year, with rates 1bp lower to 3bps higher.
• Tomorrow, the local calendar will also see Weekly International Flow and Tokyo Condominiums For Sale data.