JPY: Asia Wrap - USD/JPY Consolidates Gains Above 150.00
The USD/JPY range has been 150.24 - 150.62 in the Asia-Pac session, it is currently trading around 150.30, -0.03%. The pair looks to be consolidating its gains above 150.00 after the surge higher in reaction to Sanae Takaichi’s victory. The market's attention has quickly returned to a potential looser fiscal and monetary policy on this outcome and looks to be pushing back the likelihood of an imminent rate hike. With risk roaring higher this all feeds further into the carry trade, the focus will now turn toward the pivotal 151/152 area a break of which could potentially start another leg higher. Expect dips to now find support unless there is push back on the market's views of Takaichi’s policies. There was some jaw-boning today about FX moves but realistically I would not expect any action until we cross back above the 155 area.
- The last CFTC data available showed Asset Managers remained significantly long JPY, should these moves begin to gather momentum, they could be forced to first pare back their longs and then if significant levels are broken begin to rebuild JPY shorts. Many crosses are breaking through some pivotal areas(CNH/JPY Above 21.00) and unless the government says something to contradict the markets thinking these could begin to gather momentum.
- MNI - Household Spending Above Forecasts, Supports BoJ Hike Plans : Japan household spending for August was stronger than forecast (+2.3%y/y, versus 1.2% forecast, 1.4% prior). We are below earlier 2025 highs from a y/y momentum standpoint, but the trend has steadily improved from late 2024 lows. It should add, albeit at the margins, to the case for a further BoJ rate hike, although little is priced for the Oct meeting (implied rate of 0.52%, versus a current effective rate of 0.477%).
- "KATO: KEY FOR FX TO MOVE STABLY WHILE REFLECTING FUNDAMENTALS, REFRAINING FROM COMMENTING SPECIFICALLY ON MARKET MOVES" - BBG
- "SUZUKI: CAN'T IGNORE FISCAL DISCIPLINE, CAN'T ACHIEVE JAPAN GROWTH WITHOUT INVESTMENT” - BBG
Options : Close significant option expiries for NY cut, based on DTCC data: 149.75($895m), 150.00($796m), 151.00($776m). Upcoming Close Strikes : 147.00($1.47b Oct 8) - BBG.
Fig 1 : USD/JPY Spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
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LOOK AHEAD: US Macro: PPI (Wed) and CPI (Thu) Inflation
US PPI inflation is released on Wednesday before CPI inflation on Thursday, an unusual ordering that should see core PCE implications dialled in after the CPI release rather than the usual wide range waiting for specific PPI details. PPI will be watched more closely than usual this month after a far stronger than expected jump in last month’s July report fired a warning short over tariff-based cost pressures starting to feed through. That included a 0.6% M/M increase in our preferred core series of PPI ex food, energy & trade services, which strips out items such as the then booming portfolio management & investment advice category following the strength in equity markets. It's too early to gauge an accurate sense of analyst expectations for August.
CPI inflation on Thursday will then be the last major release ahead of the Sep 17 FOMC decision. Consensus looks for core CPI at 0.3% M/M after the 0.32% M/M in July, another monthly increase comfortably above a pace consistent with 2% inflation. August should in theory start to see the largest tariff impacts along with September and possibly October. Returning to July’s report, core goods inflation was softer than expected, at a still solid (by core goods standards) 0.2% M/M for a second month running but about half that of 0.4% expected by analysts. Instead, non-housing core services surprised higher. The latter was a “dangerous” development in the words of a usually dovish Chicago Fed’s Goolsbee (’25 voter), who speaking after Friday’s payrolls report is still undecided on a September cut whilst looking for August inflation data “to get more information”.
LOOK AHEAD: US Macro: Payrolls Preliminary Benchmark Revisions (Tue)
- The BLS on Tuesday will publish preliminary estimates of benchmark revisions, based off QCEW data for Q1.
- These will give an indication of the actual benchmark revisions on the Mar 2025 level of payrolls due with the Jan 2026 payrolls report released in early February.
- Bear in mind that the final benchmark estimate tends to nearly always be more negative than the preliminary figure – see historical values to the right.
- That doesn’t mean they can’t be large again after last year’s historically negative revision that lowered the level of payrolls by ~600k. Initial estimates we’ve seen look for another large downward revision, with the smallest being worth -550k but with wide ranges higher.
FED: Barclays Adds A Cut To 2025 Fed View
Barclays analysts now expect three Fed cuts in the remainder of the year, adding October to their pre-existing call for 25bp reductions in September and December. "Given the disappointing August employment report, we expect the FOMC to see more elevated downside risks to the employment side of the mandate."
- As for a 50bp September cut, "we think that the FOMC will view [that] as sending too strong a signal that labor market conditions are deteriorating. Indeed, we think that participants such as Powell understand that the slower pace of payroll employment reflects at least, in part, slower labor supply, which does not translate into increased labor market slack."
- For 2026 they continue to expect 25bp cuts in March and June to 3.00-3.25%, but "we do not think the FOMC will be able to cut rates more than twice next year, as we think that activity will show some slight acceleration, with the economy adapting to the new tariff environment and fiscal policy providing some support, and the unemployment rate will revert down amid limited increase in labor supply."
