BOJ: Fixed Rate Purchase Offer​

The AFR reported that the RBA warned the government in a recent meeting not to allow large wage increases ahead of June’s announcement of the size of the minimum wage rise. Apparently Governor Lowe said that increases above 2%-3% plus any productivity growth would be inflationary. A 7% increase has been proposed and is currently being looked at by the Fair Work Commission. The government has criticised the leak from the meeting, as the contents had been intended to remain confidential.

• The RBA is on the front page of today’s Australian, as it reports that economists are concerned that the recommendations from the RBA review could result in the central bank losing control of rate setting.
• They argue that because the Board will continue to have more external than internal members but will have a formal vote, which will be published in the minutes (without attribution), then RBA staffers could be outvoted. CBA’s chief economist Aird notes that this would be different from other central banks that have a formal vote, as the majority of committee members are internal. He said “the new proposed structure of the board is different from what is generally considered best practice”.
• Treasury has said it agrees “in-principle with all the review’s recommendations” but is working with parties concerned on how they should be implemented.
• Westpac’s chief economist Evans believes that the proposed system implies that external members need to challenge internal RBA thinking as they are being appointed for their monetary policy expertise. He said “the risk of a dysfunctional ­decision process where members do not have the insights afforded to bank representatives looms large.”
• NAB’s Oster is fine with the proposed changes but clearly stated that the external members need to be chosen carefully from both academia and the financial markets.
  
  - AFR, Bloomberg, The Australian

JGB futures unwind the uptick seen in overnight trading ahead of the weekend to be 148.51, -5 compared to settlement levels as US tsy futures soften slightly in Asia-Pac trade, reacting to the news of a bipartisan debt ceiling agreement had been reached on Saturday. However, the true test remains in garnering support from lawmakers across the political spectrum.

• Cash tsys are closed today for the Memorial Day holiday.
• In a Bloomberg article, the possibility of a dissolution of the diet and general election in June-July will probably remain on the market’s radar because of improvement in approval ratings of PM Kishida’s administration, according to Barclays note dated Sunday. (link)
• Cash JGBs are trading mixed in early Tokyo trade with yields ranging from +0.6bp (1-year) to -0.4bp (5-year). The benchmark 10-year yield is 0.1bp higher at 0.422%, below the BoJ's YCC limit of 0.50%. The benchmark 2-year yield, ahead of tomorrow's 2-year supply, is trading unchanged at -0.063%, showing no sign of concession on the curve.
• The swap curve has twist steepened in early Tokyo trade with rates -0.1bp to +1bp. Swap spreads are wider across the curve.
• On the local data front, we have later today final March readings for the coincident and leading indices, with neither release likely to move sentiment.
• BoJ Rinban operations covering 3-25-year+ JGBs are slated today ahead of 2-year supply tomorrow.

TYM3 is currently trading at 112-08, down 4+ points compared to NY closing levels on Friday. Earlier during the Asia-Pacific trading session, it hit a low of 112-03+. The market's reaction is linked to the news of a bipartisan debt ceiling agreement that was reached on Saturday. However, the true test remains in garnering support from lawmakers across the political spectrum.

• With the Asian calendar light today, local participants are likely to be headlines watch.
• Cash tsys are closed today for the Memorial Day holiday.