JPY: Asia Wrap - USD/JPY Slips Back Below 149.00 As US Shutdown Looms
The USD/JPY range has been 148.89 - 149.52 in the Asia-Pac session, it is currently trading around 148.95, -0.35%. The USD’s bout of strength stalled as the data on Friday came in as expected. This saw USD/JPY fail toward 150.00 and the drift lower has extended this morning as the market begins to price in a US shutdown. Having closed back above 149.00 to end the week the JPY bears would be hoping that dips remain supported. Non-Farms this week if released could have a significant bearing on price, so the market will be setting up for this to start the week. First Support is around the 148.50/149.00 area, if this doesn't hold due to shutdown fears we will go into payrolls back in familiar ranges.
- “LDP contender Sanae Takaichi hinted at a review of Japan’s $550 billion investment fund that was part of its pact with the US.” - BBG
- "JAPAN TO CONVENE EXTRAORDINARY DIET SESSION MID-OCT: YOMIURI" - BBG
- (Reuters) - “The Bank of Japan will probably raise its benchmark interest rate at least four more times to 1.5% before Governor Kazuo Ueda's term ends in early 2028, former central bank board member Makoto Sakurai told Reuters. Sakurai, who retains close contact with incumbent policymakers, forecast another hike by year-end, two more increases in fiscal 2026, and one or two hikes in the year ending March 2028.”
- Bloomberg - “Dollar-Yen Risk Is Overlooked by Investors, Morgan Stanley Says. Morgan Stanley says markets are underpricing the risk that the dollar will push lower against the yen. It recommends buying options ahead of US jobs data, a potential US US government shutdown and the party leadership election in Japan.”
- Options : Close significant option expiries for NY cut, based on DTCC data: 150.70($410m). Upcoming Close Strikes : 146.50($1.09b Oct 1) - BBG.
- CFTC data shows last week asset managers increased their JPY longs slightly +79262( Last +71162), leveraged funds though again used the dip to add to their short position as the support held, -634171(Last -58811). The diverging views amongst investors continue to build.
Fig 1 : JPY CFTC Data
Source: MNI - Market News/Bloomberg Finance L.P
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RATINGS: S&P Upgrades Portugal To A+ From A
S&P has upgraded Portugal's long-term credit rating to A+ from A, with a stable outlook (had been positive).
- This is the 7th S&P upgrade for Portugal, from a low of BB in 2012-15. Only four ratings are higher (AA-, AA, AA+, AAA). This is the same rating as Slovakia, and just above Spain (A) per S&P.
- Per Bloomberg: "*S&PGR UPGRADES PORTUGAL TO 'A+' ON LOWER DEBT; OUTLOOK STABLE"
STIR: Still Eyeing September And December Cuts
With few market-moving data points this week, implied Fed rate cuts essentially held onto their post-Jackson Hole upward repricing, adding a couple of basis points of easing for good measure heading into the Labor day weekend.
- Indeed, the lack of movement is somewhat remarkable given this week's extraordinary "firing" of Fed Governor Cook, which is currently being fought out in the courts. In all it probably added to the dovish tone on the near-term rate outlook post-Jackson Hole but not substantially so, at least so far.
- The current path sees a September rate cut priced with nearly 90% implied probability, with 56bp of cuts through end-year (a cumulatively priced second cut in December) and 83bp through March 2026 (3+ cuts).
MACRO ANALYSIS: MNI US Macro Weekly: One Week, Two Labor Days
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- A busy pre-holiday week for data brought mixed economic signals and little net change in Fed easing expectations, putting next week’s labor day – Friday with its nonfarm payrolls report, of course, with apologies to Monday’s federal holiday – in focus for the FOMC and market participants alike.
- Second-quarter GDP was revised up by more than expected in the second reading, to 3.3% Q/Q SAAR, driven by better-than-previously estimated domestic demand but still leaving 1st half growth in slightly weaker territory vs last year. That said, the Atlanta Fed's Q3 GDPNow estimate jumped to 3.47% (though the implied contribution from net exports in the quarter looks somewhat dubious, as we explain).
- The other major release of the week was July's Personal Income and Outlays report, which showed a modest uptick in income and spending on the month. However, the broader trends remain mixed at best, as real disposable income growth remains soft and services consumption is failing to regain traction.
- Core PCE inflation was close to expectations in July as the Y/Y accelerated to 2.9% for its fastest since February as it moves further away from recent lows of 2.6% having stalled above the 2% target. Recent trend rates are a little hotter but the median FOMC member will still need to see a further acceleration to meet their 4Q25 forecasts from June.
- Labor data were mixed. Latest jobless claims were in line to slightly better than expected, with initial claims trending a little higher but still impressively low whilst continuing claims are broadly plateauing after sharper increases in 1H25. But within the Conference Board consumer survey, the labor differential edged lower again, suggesting a continued upward trend in the unemployment rate.
- Elsewhere: regional Fed activity surveys were individually mixed, but combined generally showed an improvement in both manufacturing and services activity albeit with continued upside price pressures.
- Consumer sentiment (UMichigan and Conference Board surveys) and housing activity remained soft.
- Apart from Gov Waller again making the case from rate cuts, other FOMC colleagues who commented this week were a little more guarded when it came to the need for easing, to our ear.
