JPY: New Highs as Policy Continuity, No Extra Issuance Underpins Fearsome JGBs

JPY is adding to the day’s gains in recent trade, helping trigger fresh daily highs against broader G10 FX. Currency strength comes alongside continued strength for JGB futures, which are similarly printing new daily highs at 131.88, making for a near 80 tick two-day rally.

• No specific headline or news trigger for the latest phase of buying, but comes as part of the continued digest of the election results at the weekend – and Takaichi’s confirmation that fresh bond issuance won’t be required to fund tax cuts, and that she will look to reappoint all cabinet members – another sign of policy continuity even with a larger majority in parliament.
• We noted earlier that the next meaningful strength for JPY may have to include a fresh BoJ tightening impetus – and recent sessions have seen not only a stabilization of the currency but, possibly more importantly, local bond markets, providing a more stable backdrop into which the Bank can tighten policy. We interviewed former BoJ Chief Econ Toshitaka Sekine on Friday, who stated a BOJ hike in March remains feasible as real interest rates remain low and the risk of falling behind the curve persists.