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At the Tokyo lunch break, JGB futures are weaker, -9 compared to the settlement levels.

• According to MNI’s technicals team, a clear downtrend in JGB futures remains intact and the latest fresh cycle lows reinforce this condition. Note too that moving average studies on the continuation chart are in a bear-mode setup, highlighting a clear downtrend. The move down exposes the 140.00 psychological handle next. For bulls, a reversal would open 142.73 and 144.48, the Dec 9 and Nov 11 high respectively. For now, short-term gains are considered corrective.
• Outside of the previously outlined Current Account Balance and bank Lending data, there hasn't been much by way of domestic drivers to flag.
• Cash US tsys are ~1bp richer in today’s Asia-Pac session after Friday’s heavy post-payrolls session. Headlines have crossed from Bloomberg, with US President Trump stating that the US will announce tariffs of 25% on all steel and aluminium imports from Monday. Trump didn't announce a time when these tariffs will take effect.
• Cash JGBs are flat to 2bps cheaper across benchmarks, with a steepening bias. The benchmark 10-year yield is 2.2bps higher at 1.324%, a fresh cycle high.
• Swap rates are flat to 1bp higher. Swap spreads are tighter.

BoJ-dated OIS pricing continues to firm in February, with rates rising 1–4bps today, led by the October contract.  

• Recent economic data from Japan, including stronger-than-expected wage growth and household spending, has fueled speculation that the BoJ may accelerate and extend its rate hikes beyond prior market expectations.
• Markets currently assign a 2% probability to a 25bp hike in March, a cumulative 51% chance by June, and now fully price in a 25bp increase by September—a shift from late January when a hike wasn’t fully priced in until October.

Figure 1: BoJ-Dated OIS – Today Vs. Friday 31 January

Source: MNI – Market News / Bloomberg

RBA-dated OIS pricing is flat to 3bps firmer across meetings today. 

• A 25bp rate cut is more than fully priced for April (128%), with the probability of a February cut at 88% (based on an effective cash rate of 4.34%).
• The last time the market was this confident about a rate cut was in March 2020, when expectations proved correct—the RBA cut rates twice that month, once at the scheduled meeting and again on the 20th.
• Notably, the last time the RBA disappointed market expectations by not cutting when a more than 75% probability was priced was in November 2012. However, even then, the RBA cut by 25bps in the meetings on either side—October and December 2012.
• Based on historical patterns, it would be highly unusual for the RBA not to follow through on market expectations, especially since it has made no attempt—officially or unofficially—to steer expectations away from a cut, as it has done in the past.

Figure 1: RBA Cash Rate Vs. 1st OIS Contract

Source: MNI – Market News / Bloomberg