JPY: Asia Wrap - USD/JPY Back Under Pressure
The Asia-Pac USD/JPY range has been 142.12 - 142.96, Asia is currently trading around 142.55. USD/JPY was under pressure early in our session as BOJ Governor Ueda sounded confident the central bank would meet its inflation target. A headline late in our session: "Japan's Ministry of Finance will consider tweaking the composition of its bond issuance plan for the current fiscal year ending in March 2026, which could involve trimming the issuance of super-long bonds, two sources with direct knowledge of the plan told Reuters". The long end in the JGB's extended their move lower late in our session and USD/JPY is attempting to bounce off its lows.
- MNI: BOJ's Ueda Sees Inflation Near 2%, Easing Still Needed https://www.mnimarkets.com/articles/mni-bojs-ueda-sees-inflation-near-2percent-easing-still-needed-1748306760883
- “The upcoming 40-year JGB auction tomorrow will be closely watched following a lackluster 20-year sale last week — a sign of the caution that still runs deep among long-end investors.”(BBG)
- Robin Brooks on X : Japan is at the heart of the global rise in long-term yields. To be honest, I'm surprised the rise has been allowed to be as rapid as it has. At 240% debt to GDP, Japan really can't allow long-term yields to keep rising the way they have. This is where fiscal dominance is acute. https://x.com/robin_j_brooks/status/1926991620370522435
- USD/JPY again struggled to hold onto any gains above 143.00, can Ueda’s comments get it to break below 142.00 or does this level hold again.
- The price action last week shows the market is still much more comfortable selling rallies, resistance is now back towards 144.00/145.00. The focus will turn once more to the pivotal 140.00 area, a break of which will open a much deeper move lower.
Options : Close significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 143.00($1.81b May 28), 143.00($3.06b May 30), 140.00($2.68b May 30).
Fig 1 : JGB 30 Year Daily Chart
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
