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THE INSIDE JAPAN COLUMN: Yen Touches High on Weak USD, Bonds Eye BOJ Plan: Inside Japan

Yen Touches High on Weak USD, Bonds Eye BOJ Plan: Inside Japan

(Bloomberg) — Yen firmed to six-week high as dollar remains under pressured from lack of U.S. inflation that casts doubts about how aggressively Federal Reserve can raise rates. Bond market will keep eye on Bank of Japan’s purchase plan for next month due later Monday.

  • USD/JPY touches six-week low of 110.51 early on Monday
    • USD/JPY fell Friday after North Korea launched ICBM
    • North Korean leader Kim claimed he could strike the entire continental U.S. after test-firing the regime’s second intercontinental ballistic missile within a month
    • Friday’s soft U.S. GDP, employment cost index data reinforced Fed’s view inflation pressures remain weak
  • U.S. 10-year Treasury yield fell 2bps to 2.29% on Friday
  • “The fact the USD finished the week on its lows is often a sign of more of the same for the coming week. Subsequently, this week, there is a reasonable chance the USD moves lower again; particularly in the early part of the week,” according to a CBA report
    • Outcome of Tuesday’s June PCE inflation report will be important because last week’s FOMC comments that inflation is “running below 2%” instead of “running somewhat below 2%” suggest Fed wants to see a pick-up in inflation before they feel comfortable lifting interest rates again: CBA
  • Leveraged funds slightly decreased net yen short positions to 84,989 in week to July 25 after boosting such positions to most since August 2015 in prior week, CFTC data show
  • U.S. treasury secretary Mnuchin stepped up pressure on lawmakers on Friday to raise govt’s borrowing limit, even as House members left for five-week recess

BONDS

  • JGB futures ended overnight session unchanged at 150.19 while 10-year yield closed at 0.075%
  • BOJ buys bonds in 10-year to 25- year, and maturities longer than 25 years
  • BOJ announces bond buying plan for August at 5pm
  • “JGB market is expected to start on a firm footing, with BOJ’s buying operations helping to tighten supply/demand balances even amid wariness over tomorrow’s 10- year auction and BOJ’s bond buying plan for next month. Focus for the plan is whether BOJ will reduce purchases for medium- to long-term bonds as overseas yields are calming,” Katsutoshi Inadome, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities, writes in note
    • BOJ likely to keep purchase unchanged: Inadome

To contact the reporter on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net Garfield Reynolds

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