JAPAN JGBS: Futures Flat In Limited Trade; 20-Year JGB Auction Eyed

JGB futures are +1 ticks at 144.73, having worked their way higher in meandering fashion since the Tokyo open, driving the contract very modestly above its overnight close (-5 ticks at 144.67). The contract has maintained its somewhat rangebound showing across much of the month of Aug so far, having traded between 144.50 to 145.50 across the past two weeks amidst a lack of meaningful domestic catalysts - while also essentially tracking moves in US Treasuries across the same period

Cash JGBs run 0.5-2.5bp cheaper across the curve, bear steepening. There are no domestic data releases of note scheduled for today, leaving focus centred around an upcoming auction of Y1.0tn of 20-Year JGBs slated for later in the session

Looking domestically, Nikkei reported that the Japanese government plans to raise the long-term interest rate estimate (to 2.1% from 1.9%) for the calculation of its state budget for the next fiscal year, a move that would reflect a rise in JGB yields (and implying an estimate of JGB yields to trend at ~1.0% across the period, taking into account how the estimate is derived) amidst monetary policy tightening from the BOJ. Debt-servicing costs are expected to increase to ~Y28.9tn for the next FY as a result, up from ~27.0tn for the current FY. The overall budget will likely come in above the Y110tn mark for a fourth straight year. Note that the interest rate estimate for the next FY will be finalised in Dec '24

Apart from that, the LDP's Nakatani has said that the party's leadership election will be held on 27 Sep, with campaigning to begin on 12 Sep. Based on past contests, results will likely be out by the middle of the Tokyo afternoon

Note that the contest will decide the next Prime Minister of Japan. On potential winners, there are arguably no clear frontrunners at present, although in any case, the field of candidates do not seem to have policy platforms/views that are very different from PM Kishida's at present, with most pundits having already said that they expect broad policy continuity

Note that minister for digital transformation Kono has been reported (per NTV) to be announcing his own run next Monday (26 Aug) - no surprise here

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