JPY: Asia Wrap - USD/JPY Consolidates Ahead Of US CPI
The Asia-Pac USD/JPY range has been 147.56 - 147.89, Asia is currently trading around 147.65, -0.05%. The pair has traded sideways with little direction, consolidating its recent move higher. The USD/JPY relentless march higher has been pretty telling, challenging a market positioned the wrong way. Price is now consolidating some of those recent gains, dips back towards 146.00 should now find support first up. The US CPI tonight will be closely watched by the bond market and consequently will also be important for USD/JPY.
- JAPAN Long Dated Yield Surge Continues, With Election Driving Uncertain Outlook: As Japan's upper house elections approach (held July 20), focus remains on the relentless rise in longer-dated JGB yields. The 30yr is up a further +4bps today, last around 3.21%. Concerns around fiscal slippage is a factor in the JGB sell-off.
- Reuters : "Barclays calculates that the rise in 30yr yields currently factors in about a three percentage-point cut to Japan's 10% consumption tax rate. "Even if the ruling parties retain their majority in the upper house, they would still be unable to pass budget bills, including the upcoming supplementary budget, without the cooperation of the opposition parties."
- "JAPAN, EU TO ISSUE JOINT STATEMENT ON ECONOMIC ALLIANCE:YOMIURI" - BBG
- "JAPAN RULING BLOC MAY STRUGGLE FOR MAJORITY: MAINICHI ANALYSIS" - BBG
- USD/JPY has lost all downside momentum for now and is back in its wider 142.00 - 148.00 range. The Market is long JPY and should the USD manage to continue to correct higher the risk is a move back to the top end of the range to further challenge the conviction of the shorts.
- Options : Close significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 146.50($1.4b July 16).
- CFTC data shows Asset managers reduced their JPY longs slightly +89331, while leveraged funds have almost squared their newly built JPY longs +5224.
- Data/Event : US CPI
Fig 1 : USD/JPY Spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
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US FISCAL: Available Extraordinary Measures Pick Up Ahead Of Tax Date
Treasury had $144B in "extraordinary measures" available to keep the government financed as of June 11 per a release Friday. That is up from $84B a week earlier and the highest since April 28.
- However, TGA cash continues to fall, to $309B latest (lowest since early April) Combined with a pullback in Treasury cash ($376B), keeping the total resources available to avert an "x-date" in the summer at around $450B .
- There will be another uptick in Treasury cash in the coming days, and it's likely Treasury allowed some of the extraordinary measures to be rebuilt (ie not exercised) in anticipation of more cash coming in.
- This is likely to be the last major uplift before the summer at which point x-date speculation will pick up if Congress hasn't passed a debt limit increase by then.
FED: Two Cuts Priced This Year Headed Into FOMC Week
As we head into the June Fed meeting week, market pricing is reflective of the FOMC’s messaging (that we describe in our preview):
- The next cut is only fully priced by the October FOMC meeting, with September seeing a roughly 80% implied probability of bringing the next 25bp reduction.
- Exactly 50bp of cuts are priced through end-2025, implying two Q4 cuts.
- That’s a shift from just after the May meeting, after which the next cut was fully priced by September, and there were closer to three cuts priced for the rest of the year.
- Overall cuts are seen backloaded this year (after 15bp in September, 29bp of cuts priced in Q4 - Oct/Dec combined), but falls off in Q1 (just 21bp cuts priced, 9bp of cuts priced for January and 12bp for March)
FED: Summary Of Economic Projections: Higher 2025 Inflation, Weaker Growth
The MNI Markets Team’s expectations for the updated Economic Projections are below.
- As of the May meeting, the Federal Reserve staff – whose outlook tends to be broadly shared by the median Committee member – revised their forecasts for growth weaker in 2025 and 2026, “as announced trade policies implied a larger drag on real activity relative to the policies that the staff had assumed in their previous forecast. Trade policies were also expected to lead to slower productivity growth and therefore to reduce potential GDP growth over the next few years. With the drag on demand expected to start earlier and to be larger than the supply response, the output gap was projected to widen significantly over the forecast period. The labor market was expected to weaken substantially, with the unemployment rate forecast moving above the staff's estimate of its natural rate by the end of this year and remaining above the natural rate through 2027."
- On inflation, "The staff's inflation projection was higher than the one prepared for the March meeting. Tariffs were expected to boost inflation markedly this year and to provide a smaller boost in 2026; after that, inflation was projected to decline to 2 percent by 2027."
- Our expectations for these changes fall somewhere in between those projections and the March SEP – a slightly higher unemployment rate, substantially higher inflation in 2025 but to a lesser extent in 2026, and weaker GDP growth this year. Longer-run variables should be unchanged.
MNI Markets Team Expectations For June 2025 Summary Of Economic Projections Medians
