JGB (Japanese Government Bonds) futures were limit down on Friday, after CPI was confirmed at a rise of 1.2% yoy. CPI in Japan includes energy, so the rise was widely expected. Nonetheless, bonds were crushed. Indeed, since the recent peak of bond prices in Japan, which followed the Bears Stearns news, JGB futures have fallen close to 7 full points. Each point represents about 9.2 bp of a 10 year bond yield. Given the extraordinary low level of rates in Japan, such a move is unthinkable in percentage terms. Heres the rub: prices in Japan, excluding food and energy, akin to the USA CPI measure, rose just 0.1% yoy. Wages are declining and consumer spending is flat-lining, so it hard to see a real inflation problem arising here anytime soon. I am not a long term JGB bull, but if you think stocks are temporarily overbought and bonds oversold, then JGBs represent a great trading opportunity. Be careful though. The contact size of one JGB future is approximately 10x the size of an equivalent CBOT USA 10y future. JGB fututues are listed on the Tokyo Stock Exchange.





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