Morning from Europe friends. Remember that we have our Q&A sessions for clients today! Find the sign-up links here.

We have a big day ahead with inflation out at 8.30 ET (14.30 CET) but we don’t expect market fireworks around the release. Inflation is now second in the pecking order of credit/liquidity news, and we doubt that the market will care about inflation unless a remarkable re-acceleration is seen.

We have noticed several attempts from BoJ governor Ueda to keep the door open for policy action within the next months. He was again quoted saying that inflation expectations have risen “encouragingly”, but judging from the 10yr ZC swap we still trade BELOW 1%, which leaves continued easing ahead if PHD economists are to judge.

Whether we will get to the point of policy action from the BoJ is clearly debatable since the inflationary window of opportunity is closing globally due to weakening demand, but we have noted how markets have started placing a few chips on a wider YCC band again. The momentum in Japanese super-core inflation measures is yet to wane, which should keep the speculation alive.

This is good news for Japanese equities and to a certain extent for the JPY (we are long both). Markets now price 7-8bp for the June meeting again, after almost pricing out the pos
sibility of a YCC-widening just after the BoJ meeting.

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Chart 1: BoJ bets are slowly but surely returning to fashion