JGB swap curve shrinks after recently announced Kuroda’s testimony

JGB and swap curve shifted downward this week. Much of the rally took place on Monday, retracing most of the sell-off last Friday after Kuroda’s testimony at a lower house hearing. As for the LCH-JSCC spread, a further tightening was observed across the curve, indicating a continued demand from foreign investors to unwind their short/steepening positions. But be noted that buying Japanese stocks without FX hedge based on the recognition that JPY is at a historically cheap level in real terms.

On March 5th, BoJ Deputy Governor nominees, Amamiya and Wakatabe, had their confirmation hearings. While we expect to see aggressive appeals from Wakatabe in the future, we do not foresee a radical near-term change in the current monetary policy as the basic tone will likely be formed by Kuroda and Amamiya.

Having said so, we identify Rinban operations as an area in which Wakatabe may be able to find technical leverage on to support his views and make an impact on for the following reasons; the “Statement of Monetary Policy” leaves the details of purchase amount and actual 10Y JGB yield target at the discretion of market operators and BoJ board members, and the BoJ has publically expressed concerns about the unintended signal effect of reduction in purchase amount.

On March 9th, the BoJ held Monetary Policy Meeting, the last one for retiring Deputy Governors Nakaso and Iwata. All monetary policy measures were unchanged. As usual, Kataoka was the only one who opposed the decision. From next MPM (April 27), it is worthy of attention how much support Kataoka will obtain from Wakatabe.

While reasons for the new relationship are unclear, it could be understood to be Japanese investors who hold US Treasuries and have no FX hedge engaging in cutting losses ahead of FY-end. Indeed, Japanese lately net-sold foreign bonds.

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