JGBS: Modest Bear-Steepener, BoJ Policy Decision Next Week

The next RBA decision is on April 1 and it is likely to keep rates at 4.1% after cutting them 25bp on February 18. Inflation-related data since the last meeting have generally been consistent with inflation returning sustainably to target, which could mean another rate cut in May. Q1 CPI data is released on April 30 and will be a key input into the meeting but the trimmed mean will remain the focus as headline continues to be distorted by government electricity rebates. 

• February trimmed mean moderated to 2.7% y/y from 2.8%. It has now been below the top of the RBA’s band for three straight months. Headline also eased 0.1pp to 2.4% y/y.
• The RBA has been concerned about sticky services inflation. Monthly data suggest that it may have eased in Q1 with the January/February average at 3.6% y/y down from 4.2% in Q4.
• Q4 WPI showed that wage growth continued to moderate rising 0.7% q/q & 3.2% y/y down from 3.6% y/y. However, Q4 average compensation in the national accounts rose 1.1% q/q & 3.2% y/y up from 2.5% y/y, the highest quarterly increase since Q3 2023. ULC growth also picked up to 1.8% q/q & 4.7% y/y from 4.5% y/y.
• Monthly data suggest that there may not have been any further easing in wage growth with SEEK advertised salaries up 3.6% y/y in January & February, in line with Q4, and February NAB business labour costs up 1.5% 3m/3m, also in line with Q4. PMI respondents also noted that higher wage costs added to cost inflation in February.

Australia labour costs 3m/3m %

• The February NAB business survey reported a pickup in purchase costs to 1.5% 3m/3m from 1.1% in January and the composite PMI saw input cost inflation at its highest in seven months. But NAB final product prices rose 0.5%, slowest in four years, and PMI output inflation was at a fourth-month low.
• March Melbourne Institute inflation expectations fell 1pp to 3.6%, lowest since August 2021, and the February inflation gauge moderated 0.1pp to 2.2%.  

Australia trimmed mean inflation vs MI inflation gauge %

JGB futures are weaker and at session lows, -17 compared to settlement levels.

• Japan’s leading economic indicator was revised to 108.3 in January, from 108.0 in the preliminary release.
• (MNI) BoJ Ueda told lawmakers that the BOJ is always paying attention to the risk that the pace of underlying CPI inflation will accelerate above forecasts, noting the Bank had weakened the degree of easy policy since March 2024 when it scrapped the negative interest rate policy.
• "The Bank of Japan may consider monetary tightening if a surge in food prices causes broader and stronger inflation, the central bank governor said Wednesday, adding fuel to expectations for a near-term rate hike." (per DJ via BBG)
• Cash US tsys are ~2bps cheaper in today's Asia-Pac session after yesterday's modest gains. Wednesday's focus is on Durables/Cap Goods, Tsy 5Y Sale and Fed Speak from MN Fed Kashkari Fed and StL Fed Musalem.
• Cash JGBs are flat to 1bp cheaper across benchmarks. The benchmark 10-year yield is 0.9bps higher at 1.593%, a fresh cycle high.
• Swap rates are flat to 2bps higher, with a flattening bias.
• Tomorrow, the local calendar will see weekly International Investment Flow data alongside 40-year supply.

** correction to headline from earlier bullet, NZD/JPY was testing through the 50-day EMA, not the 100-day 

NZD/USD is outperforming in the G10 space, up around 0.25% in latest dealings. We track close to 0.5745/50, which is just under intra-session highs from Tuesday. The 100-day EMA is above 0.5760, a potential upside resistance watch point. 

• The A$ is the next best performer, but up a more modest 0.10%. Yen is underperforming, down around to 0.30%, with USD/JPY last near 150.35/40.
• NZD/JPY is near 86.40, which puts it above the 50-day EMA, albeit just. The 100-day EMA is around 87.40, which wasn't breached in the earlier March risk on period.
• The fact yen is underperforming points to this being a risk on move, although US equity futures sit close to flat. Concerns around China Nvidia demand in light on new energy regulations (per the FT) has weighed on Nasdaq futures.
• BoJ Governor Ueda comments are also in focus. He is before the parliament today and largely has reiterated recent BoJ rhetoric, with high uncertainty remaining around the economic outlook. 

• Regional equities are higher, but gains are mostly less than 1% at this stage (ex Indonesia).