ChainCatcher report: Market expectations for the Bank of Japan tightening monetary policy are rising, as demand for the two-year Japanese government bond auction weakened, with a bid-to-cover ratio of 2.97, below last time’s 3.63 and the 12-month average of 3.74. The tail was 0.034, higher than last month’s 0.007 and the weakest since 2016. The government led by Prime Minister Hayashi Hayami supports an interest rate hike as early as September, with overnight index swaps indicating an approximately 84% probability of a rate hike in September.
Japan's 2-Year JGB Auction Demand Hits Lowest Since 2016
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Summary
Japan’s 2-year JGB auction demand fell to its weakest level since 2016, with a bid-to-cover ratio of 2.97, down from 3.63 previously. The tail spread widened to 0.034, up from 0.007. Market expectations for BoJ tightening increased, with overnight index swaps indicating an 84% probability of a September rate hike. Under Prime Minister Asō Taro, CFT measures and MiCA compliance are gaining prominence in discussions on cross-border financial regulation.
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