Japanese Yen steadies around 158.00 as PM Takaichi vows debt containment
The Japanese Yen (JPY) nurses marginal losses against the US Dollar (USD) on Monday but remains trading within previous ranges, with downside attempts limited as Japanese Prime Minister Sanae Takaichi pledged to keep public debt under control. The USD/JPY is trading around 158.00 at the European session opening,with the broader bearish trend still intact as the US Dollar rallies across the board.
Prime Minister Sanae Takaichi promised that the government will control debt issuance and "scrutinise the economy, prices, tax revenues, interest rates, debt-servicing costs, and market developments”, in an extraordinary speech to the parliament, as Japan’s borrowing costs surged to record highs with the bond markets' turmoil worsening.
Takaichi also pledged a five-year investment plan that will be released by the end of the year, and vowed to “enhance market trust” in their policies by “communicating closely with the public, domestic and overseas players.”
Almost at the same time, the Japanese Cabinet Office revealed that Consumer Confidence ticked down to 35.4 in September from 35.5 in August, a tad better than the 35.3 reading expected by the market.
US Dollar remains bid amid the risk-off mood
In the US, Nonfarm Payrolls data disappointed on Friday and practically discarded any interest rate hike by the US Federal Reserve (Fed) in October. The US Dollar, however, maintains its bid tone, fuelled by its safe-haven status, as borrowing costs surge across the globe, with high oil prices fuelling inflationary pressures.
According to TD Securities, "September payrolls surprised to the downside last week, but the details showed underlying strength," as the moderation in job gains was "largely driven by seasonal factors — especially in leisure & hospitality." All in all, TD experts see the US labor market broadly resilient despite the monthly slowdown.
Later in the day, US "ISM services likely reversed its unexpected August gain, falling to a below-consensus 54.0 in September," and anticipates that "the recently strengthening new orders and activity components" will "lead the reversal," say TD Securities in a note.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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Japan's government bond yield curve steepens, trading remains subdued ahead of auction
(1) On Monday, Japan's government bond yield curve steepened, with subdued market activity ahead of this week's 10-year and 30-year auctions. (2) Reports indicate that the Bank of Japan may confirm that underlying inflation has reached its 2% target. (3) The 10-year benchmark yield briefly rose 1 basis point from last week's close to 3.11%, then retreated to around 3.085% on bargain buying, while the 5-year yield fell to about 2.365%. (4) The ultra-long end failed to follow the downward move: the 30-year yield on the most actively traded security rose about 2.5 basis points to 4.23%, and the 40-year yield increased approximately 3.9 basis points on the electronic platform. (5) The 2-year yield fell 1 basis point to around 1.905%, with curve steepening becoming more apparent after 9:45 a.m. (6) In the afternoon session, government bond futures fluctuated within a narrow range, with steepening pressure persisting, as the 10-year yield rebounded slightly to around 3.085% and the 30-year moved up to 4.23%. (7) Today's curve steepening suggests that investors are more cautious about Thursday’s 30-year auction than Tuesday’s 10-year issuance, with some Japanese securities firm representatives hoping the 10-year yield rebounds to levels corresponding to today’s decline before bidding closes, to ensure a stable auction. (8) Japan's Finance Minister and Prime Minister both attempted to avoid panic in the bond market. The Finance Minister stated that the Prime Minister is not pursuing a reflation policy, and in his policy address, the Prime Minister emphasized that deficit-financed bonds would not be relied on to fund the planned consumption tax cut. (9) However, most market participants believe the Prime Minister’s economic adviser leans toward a reflation stance, making it difficult to persuade the market. (10) The Bank of Japan Governor previously stated that underlying inflation is approaching 2%, that stabilizing it at this level is very important, and that the risk of overshooting is rising. (11) Overnight index swaps show about a 12% probability of a 25-basis-point rate hike at the October meeting, down from 15% last Friday, and about a 90.5% probability at the December meeting, down from the previous 96%. (12) The Nikkei index rose about 2.4% to 69,946.86 points, with USD/JPY quoted at 157.77.
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