BONDS: NZGBS: No Change Expected From RBNZ Today, Focus On Tone

NZGBs are 2-3bps cheaper after US tsys finished last week on a heavy note, 2-5bps cheaper. 

• After some massive US Block/buying in 5s (20k at 108-25.75) and 10s (+50k 111-28) buoyed rates in late morning trade – US futures extended lows in late in the session, more flow driven amid a lack of obvious headline triggers.
• Cash US tsys are closed on Monday for holiday. ADP Weekly NER Pulse and Philadelphia Fed Non-Manufacturing Activity is expected on Tuesday.
• The local data calendar is empty today. PM Luxon makes his State of the Nation speech on Monday at 1255 NZDT/1055 AEDT.
• Q4 CPI data print on Friday and are expected to show inflation returning to the 1-3% band. The RBNZ left the door open for another rate cut at its 18 February meeting but a higher-than-expected inflation print towards to the top of target and activity continuing to recover are likely to mean that it is on hold.
• Bloomberg consensus expects Q4 CPI to rise 0.4% q/q bringing the annual rate down to 2.9% from 3.0% above the RBNZ’s November forecast of 0.2% and 2.7%. Swap rates are
• RBNZ-dated OIS pricing is little changed across meetings. No tightening is priced for February, while December 2026 assigns 37bps.

The USD/JPY Friday night range was 157.82 - 158.40, Asia is currently trading around {USDJPY Curncy}. USD/JPY drifted lower on Friday, it is pretty interesting that it managed this while US Yields looked to be breaking higher through some pivotal areas. The BOJ remains in a tough spot, and their verbal push back increased dramatically last week, can they provide anything of substance at the BOJ meeting this week? A test of the BOJ/MOF resolve continues to look likely as the market moves its focus back toward the important 160.00 area. In today's Asian session, first support is toward the 157.00-157.50 area as dips should continue to be supported as we approach the BOJ this week. CFTC Data showed quite a large increase in Leveraged fund Yen shorts as we approach the meeting, see Graph below.

• Bloomberg - “BOJ Keeps Yen Watchers on Edge for Rate-Hike Clues. The upcoming Bank of Japan meeting offers scope for sharp movements in the yen as investors try to gauge the timing of its next hike — with a looming election adding to the confusion. That means Governor Kazuo Ueda will need to tread carefully during a post-decision press conference to ensure that the widely expected outcome doesn’t trigger another yen selloff.” 
• Bloomberg - “China has started requiring exporters of rare earths to Japan to submit additional documents with more detailed information, including supply chains, Kyodo reported.”
• CFTC Data of last week shows Asset Managers continue to pare back their JPY longs, +30177(Last +47852). The Leveraged community has aggressively increased their own shorts heading into the BOJ, -103741k(Last -68117).
• Options : Close significant option expiries for NY cut, based on DTCC data: 156.00($450m), 159.00($1.48b), 160.00($551m). Upcoming Close Strikes : 155.00($1.26b Jan 20), 156.30($1.25b Jan 22), 1598.50($1.4b Jan 21) - BBG.
• The USD/JPY Average True Range(ATR) for the last 10 Trading days: 81 Points
• Data/Event : Core Machine Orders, Industrial Production

Fig 1 : USD/JPY Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

Source: Bloomberg Finance L.P./MNI