The era of smooth sailing in JPY funding came to a halt as the turn rolled into Tom/Next, exacerbated by a significant US Treasuries settlement. At its lowest point, the turn dipped to -80 basis points before stabilizing into positive territory overnight. Meanwhile, Tom/Next GC Tonar also softened due to borrowing from the Bank of Japan’s SLF facility over the turn but managed to recover by Friday.

Market Reactions and Key Takeaways

From a rates perspective, Japanese Government Bonds (JGBs) remained in the spotlight. A sharp selloff followed by a strong rally mirrored the volatility seen in US equity markets, catching up after decoupling on Thursday. Market sentiment was further dampened as both cryptocurrency and equity markets took a downturn. However, the cross-currency basis, despite some attempts to widen, has not been a reliable risk-on/off indicator for some time now.

Adding to the market’s uncertainty, comments from Bank of Japan (BoJ) Governor Kazuo Ueda regarding JGB intervention seemed to have been somewhat exaggerated by the media. Furthermore, BoJ appearances in the Diet did not provide any concrete insights into the central bank’s future policy direction.

Looking Ahead: Key Events and Data Releases

Next week will feature a speech by BoJ Deputy Governor Uchida on Wednesday, which could provide additional clarity on monetary policy. The Shunto wage negotiations, which play a critical role in shaping inflation expectations, have so far proceeded as expected, with the initial first tally set for release on March 14.

On the inflation front, CPI figures came in slightly weaker, yet underlying inflation measures are trending back up. As a result, market expectations suggest that up to and including the July BoJ meeting, around 25 basis points should be priced in. This suggests potential value in the short end of the yield curve at this stage.

While JPY funding conditions have tightened, broader market trends and upcoming economic data will continue to shape expectations. Investors should keep a close eye on policy signals from the BoJ, wage negotiation outcomes, and inflation trends as they navigate this evolving landscape.