JAPAN: Japan Buys Foreign Bonds & Equities, Although Overall Net Flows Muted
Data from Japan’s MoF covering the week through 6 January revealed that Japanese investors were net buyers of international bonds, breaking a streak of 4 consecutive weeks of net sales, although net flows weren’t standout in size terms (Y566.8bn). This came as core global FI markets firmed during the early rounds of ’23 dealing and may very well have been unhedged on an FX basis.
- Elsewhere, international selling of Japanese bonds continued to moderate from the record levels seen in the week of the final BoJ decision of last year (which provided the surprise YCC tweak from the Bank), falling to a more paltry Y271.2bn, representing the 4th straight week of net sales in that metric.
- On the equity side, Japanese investors were net buyers of international equities for a 6th straight week, with net purchases hitting the highest weekly level observed since early October.
- Meanwhile international investors were small net sellers of Japanese equities, negating the net purchases seen in the prior week.
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JGB TECHS: (H3) Remains Below Resistance
- RES 3: 152.26 - High Dec 7 / 21 2021 (cont)
- RES 2: 151.13 - High Mar 3
- RES 1: 149.75/150.81 - High Nov 11 / High Aug 5
- PRICE: 148.24 @ 16:37 GMT Dec 13
- SUP 1: 147.38 - Low Oct 21 (cont)
- SUP 2: 147.07 - Low Jun 20
- SUP 3: 145.05 - Low Jun 16 and a key support
JGB futures continue to trade below 149.75, the Nov 11 high on the continuation contract. A resumption of weakness would expose support at 148.24, the Oct 21 low (cont). If this level is cleared, scope would be seen for a move towards 147.07, the Jun 20 low (cont). For bulls, key resistance has been defined at 150.81, the Aug 5 high where a break is required to suggest a stronger medium-term reversal.
JGBS: Futures Follow Wider Post-U.S. CPI Impulse, Tankan Eyed
The post-U.S. CPI dynamics in wider core FI markets dominated in overnight dealing, allowing JGB futures to firm, before paring back from best levels, with the contract finishing pot-Tokyo trade +13 vs. settlement levels.
- There hasn’t been much in the way of tier 1 domestic news flow since yesterday’s close, although plenty of interest remains re: the Japanese fiscal situation and funding of the increased defence spending plans.
- The quarterly BoJ Tankan survey provides the highlight of today’s domestic, although we do remind you that our policy team has flagged its understanding that “Bank of Japan officials are awaiting March's Tankan survey to assess whether corporate inflation expectations continue to firm despite falling oil prices, offering the prospect of a virtuous cycle of higher prices and wages that is considered integral to any shift in the bank's easy policy settings in 2023.”
- Elsewhere, we will see the latest core machine orders reading, final industrial production data and BoJ Rinban operations covering 1- to 10- & 25+-Year JGBs.
US TSYS: CPI Moderates Ahead Of Fed
TYH3 deals unch. at 114-25, in line with levels seen late in the NY session.
- Cash Tsys bull steepened, finishing 4-16bp richer on Tuesday.
- Early NY trade saw a gap higher after softer than expected Nov CPI figures, with 2-Year yields dropping 24bp in the immediate aftermath of the release, before the move moderated.
- The latest 30-year auction spurred further weakness, generating a tail of over 3bps alongside a sub-average bid/cover ratio.
- A large block sale in TY futures had aided the pre-auction cheapening.
- OIS pricing for the impending Fed meeting is stable, with a 50bp hike fully priced in after previous guidance from the Fed re: a potential step down in the pace of tightening at the meeting. Meanwhile terminal rate pricing has eased to 4.85%, falling by ~14bp on Tuesday in lieu of the CPI release.
- The FOMC rate decision and Fed Chair Powell's press conference will dominate today, see our full preview of that event here. Outside of that, UK CPI data may provide some cross-market spillover in the London morning.
