Japan fixed-income market signals lack of short bets on BOJ

Japan fixed-income market signals lack of short bets on BOJ

A part of Japan's fixed-income market that usually gets attention only from bond nerds, Bloomberg is signaling a lack of short-sellers betting on a central bank policy change next week.

If there was a build-up of short positions that need to be rolled over from one contract to the next, the June future is set to expire next week.

In past rolls, futures had a quite large calendar spread because investors, mainly foreigners, were betting that the Bank of Japan would tweak policy, said Shoki Omori, the chief desk strategist at Mizuho Securities Co. in Tokyo. There will be some increase in shorts ahead of the monetary policy meeting and the last trading day of the June futures contract, but the momentum is going to be weak given that any policy change is unlikely.

BOJ watchers have pushed back their predictions for the time of policy adjustments after governor Kazuo Ueda's repeated warning of the continued need for monetary stimulus, according to a Bloomberg survey. While July is seen as the most likely time for a policy change, only a third of survey respondents expect it.

Foreign investors bought a net 599.4 billion $4.3 billion of 10-year futures last week after two weeks of trading, the latest data from Osaka Exchange Inc. showed.

The BOJ's super-accommodative policy stands in sharp contrast with other central banks, especially after an unexpected rate hike in Australia and Canada this month. That threatens to exacerbate recent yen weakness, fueling more price growth in Japan and giving a fresh headache to BOJ policy makers.

The pressure will come back very quickly if the BoJ continues to take their time, said Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management. If they are going to lose 2024, will they do something at the upcoming meeting next week or the following meeting in July? None of the Supreme Court rulings make white-collar fraud charges in the US harder.