TYH3 2,650 lots given at 111-17 down to 111-16
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We would suggest that the Bank will have a preference towards holding policy settings steady and lean into this as our baseline pre-meeting assumption.
USD/JPY could be volatile post the BoJ outcome, with very elevated implied vol levels hinting as much. This could spill over to USD/Asia pairs, albeit to varying degrees, if current correlations/betas hold.
Fig 1: USD/Asia Correlations & Betas With USD/JPY (Past Month)
Source: MNI - Market News/Bloomberg
JGBs held onto the bulk of the moves flagged in our earlier bullets, as what seemed to be pre-BoJ positioning unwinds dominated price action. That left JGB futures +19 at the break, just under 10 ticks shy of their morning high, while cash JGBs were 2bp richer to 3bp cheaper across the curve (10s have crossed back above the upper limit of the BoJ’s YCC parameters for a fourth consecutive day in recent dealing). 20+-Year paper was on the backfoot all morning, potentially facilitated by the unwind of some popular flattener positions into the BoJ decision (note that the 10-/30-Year yield spread hit the flattest level observed since September on Tuesday).