FxWirePro: Daily Commodity Tracker - 21st March, 2022 
The Japanese government bonds slumped on Thursday, tracking weak trend in U.S. Treasuries prices overnight after the minutes of the April FOMC revealed hawkish remarks by many policymakers. Also, higher than expected first quarter GDP figure drove-out investors from safe-haven buying. Furthermore, future course in bond prices are likely to be ruled by the movements in the crude oil market. The yield on the benchmark 10-year bonds, which moves inversely to its price rose 2bps to -0.076 pct and the yield on 2-year bonds climbed 1bp to -0.224 pct by 0620 GMT.
The FOMC in its April 26-27 meeting minutes indicated that most judged it would likely be appropriate to hike in June if data remains consistent with Q2 GDP pickup, firmer labour market conditions and progress on inflation. Some concerned that markets may not have accurately assessed the chance of a June hike and policymakers expressed a range of opinions on whether there would be enough incoming data before June 15 meeting to warrant a hike. Some judged outlook as now roughly balanced, many others continued to see downside risks and few saw it as appropriate to hike in April, two worried that US behind the curve on inflation. May expressed confidence that US growth would pick up in coming quarters but some saw risk that a more persistent slowdown underway and generally saw risks from global and financial developments as having diminished but still warranted close monitoring. Some participants noted that global financial markets could be sensitive to the upcoming British referendum on membership in the European Union or to unanticipated developments associated with China's management of its exchange rate.
In terms of inflation, the incoming information on inflation over the intermeeting period showed that the earlier declines in energy prices and falling prices of non-energy imports were still contributing importantly to low headline inflation. Additionally, despite the recent rise in core inflation, some participants continued to see progress toward the Committee's 2 percent inflation objective as likely to be gradual. They noted that, as they had expected, the March CPI data showed that the high monthly readings on some components of core prices in January and February were transitory, and that the March CPI data suggested that the 12-month change in core PCE prices likely moved down in March. Several commented that the stronger labour market still appeared to be exerting little upward pressure on wage or price inflation. Nevertheless, most participants continued to expect that, with labour markets continuing to strengthen, the dollar no longer appreciating, and energy prices apparently having bottomed out, inflation would move up to the Committee's 2 percent objective in the medium run.
On balance, these minutes go a long way in uncovering sentiment not very much reflected in the April FOMC statement. On balance, this release should go a long way in making the June meeting a live event, something that was seen as less likely in the wake of the April meeting. However, given the need for data to cooperate as the meeting approaches, nothing is certain. Nevertheless, we continue to expect only 50bps worth of tightening from the FOMC in 2016, regardless of whether or not they choose to act in June.
Yesterday, the Japan (world’s third largest economy) witnessed a jump in its Q1 growth figures, beating analysts’ expectations. This is expected to discourage the Bank of Japan Governor Kuroda to further pursue easing steps, to help revive the ailing economy. However, few believe that the rebound is not strong enough to generate hopes of revival of the crawling economy. The Japanese Q1 gross domestic product grew by 1.7 pct at an annualized seasonally adjusted rate, against market hopes of a nominal 0.3 pct and compared to -1.1 pct in the previous quarter. In line with this, non-annualized GDP (seasonally adjusted) grew 0.4 pct, against analysts’ expectations of 0.1% and -.04% compared to last quarter. Minutes after the GDP data was released, analysts have judged the high-than-expected figures as nominal, hoping the Kuroda-led central bank to ease policy in June, against a backdrop of poor economic conditions and weak inflation. We foresee that in light of the recent growth figures in the Eurozone, improving economic indicators in the US, and now better Japanese GDP, hopes of further BOJ easing have diminished.
"The Japanese economy will continue its trend to recover on a moderate path with rebound in consumption likely to be behindQ1 GDP figures," Reuters reported, citing Japan Economy Minister Shintaro Ishihara in a recent release.
The Japanese bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Japan's target. Today, crude oil prices fell on rising US crude inventories, a stronger dollar and surging output from Iran to Europe and Asia. The US Energy Information Administration (EIA) published data showing an unexpected 1.31 million barrel rise in US crude stocks to 541.29 million barrels. Iran’s oil exports are set to jump nearly 60 pct in May from a year ago to 2.1 million barrel per day (bpd). The rises suggest that the country’s logistical problems following years of sanctions have been overcome or were less severe than thought. Meanwhile, the International benchmark Brent futures fell 1.57 pct to $48.16 and West Texas Intermediate (WTI) declined 1.45 pct to $47.49 by 0620 GMT.
Today, the BoJ is not expected to buy JGBs under its massive JGB purchase program, as the MoF conducts a monthly JPY 1.1 trillion 20-year JGB auction. The BoJ's adoption of negative rates in January has driven JGB yields below zero, while also increasing its market volatility. Further, we expect an expansion of stimulus, and if the market happens to rule out any additional boost in stimulus, that would create an opportunity to go long and we also foresee that the 10-year note will yield about -0.15 pct at year-end.
Meanwhile, Japanese equities fell despite yen weakness but pared losses, the benchmark Nikkei 225 index closed up +0.1% at 16,646.66, and the broader Topix index closed down 0.14 pct to 1,336.56 points.
