INDONESIA: BI Cautious But Retains Easing Bias, Further Cuts Forecast
Bank Indonesia left rates at 4.75% as was widely expected as it shifted its focus to rupiah stability and noted a lower “probability of a further reduction in the Federal Funds Rate this year”. Its concern around portfolio inflows also suggests it would like to rebuild FX reserves given its consistent intervention to support the rupiah. It appears that it has become more cautious after cutting rates 3 times in Q3 but retains an easing bias.
- JP Morgan notes that the slowdown in BI’s government bond purchases may be to encourage portfolio inflows by “restoring carry appeal to foreign investors”. Given the lower probability of further Fed easing and increased domestic risks from the 3% budget ceiling review, it has pushed out its remaining 2 rate cuts to Q2 2026.
- Societe Generale highlights the risks around lending observing that the government injection of IDR 200bn into state-owned banks could improve transmission of BI easing but increases inflation risks and “as credit growth accelerates amid weak economic fundamentals, banking sector stress could intensify”. It believes that growth concerns will drive BI to cut three more times bringing rates to 4.0%.
- MUFG estimates the neutral rate to be around 4.5%, only 25bp below where BI is now. It expects another 25bp cut at the 17 December decision with two in H1 next year to stimulate growth. It notes that the key risks facing Indonesia given both accommodative monetary and fiscal policy are “higher inflation, fiscal slippage, and rupiah weakness”. MUFG also expects “USDIDR to rise to 16,900 by end-2025 before easing slightly to around 16,700 by end-2026”, above BI’s 16,430 2026 forecast.
- Given its easing bias to support growth, Goldman Sachs expects BI to cut 25bp in December and then again in Q1 2026.
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JAPAN: Proposed New Japan FinMin Saw Yen Undervalued In Earlier 2025 Remarks
Headlines have crossed that Japan's new PM will appoint Satsuki Katayama as the new Japan FinMin. Katayama is the former regional revitalization minister. She was elected in July 2010 as a candidate for the LDP. Earlier this year (March 25) she gave an interview with Reuters, where she stated that the yen was undervalued. Some key quotes are outlined below. Viewpoints from the new government will around the yen will be eyed closely, as Takaichi, as the new PM, has generally been seen as a negative yen development (pushing back on BoJ rate hikes etc). USD/JPY is down slightly so far today, dipping a little on the new FinMin headlines, but follow through has not been evident, we were last 150.65/70 (session lows at 150.51, highs at 150.85)
- "Japan's economic fundamentals suggest the yen's real value is closer to 120-130 per dollar rather than the current 150 levels, senior lawmaker told Reuters, as the ruling party considers steps to help reverse capital outflows. I believe 120 to 130 levels to the dollar are seen as the value reflecting Japan's economic strength," Satsuki Katayama, who chairs the ruling Liberal Democratic Party's (LDP) research commission on the finance and banking systems, said in an interview on Tuesday." (via CNA from March 25 this year).
- It was also announced that Kimi Onoda would serve as economic security minister. via Wikipedia: "She served as Parliamentary Vice-Minister of Defense from 2022 to 2023 and is a member of the House of Councillors representing Okayama. She previously served as Parliamentary Vice-Minister of Justice from 2020 to 2021 under the Suga Cabinet."
- Ryosei Akazawa is set to be the METI/Trade Minister.
JGBS: Richer, 10Y Outperforms Future-Linked 7Y
In Tokyo morning trade, JGB futures are stronger, +18 compared to settlement levels, after adding to overnight gains.
- (Bloomberg) -- The head of Japan’s ruling Liberal Democratic Party Sanae Takaichi is set to name former regional revitalization minister Satsuki Katayama as finance minister if she is elected as the prime minister, broadcaster FNN reports.
- Cash US tsys are slightly mixed, with a flattening bias, in today’s Asia-Pac session after yesterday’s gains.
- Cash JGBs are slightly richer across benchmarks, with a slight flattening bias. The benchmark 10-year yield is 1.4bps lower at 1.660%, outperforming the futures-linked 7-year. This continued the recent trend which has unwound the relative cheapening of the 10-year earlier in the year.
- Swap rates are flat to 1bp lower. Swap spreads are mixed.
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AUSSIE BONDS: Jun-54 Auction Goes Well With Very Strong Demand
Today’s auction result extended the recent trend of firm pricing for ACGBs, with the weighted average yield printing 0.92bps through prevailing mids, according to Yieldbroker. Moreover, demand improved dramatically, as reflected by a cover ratio of 4.0533x up from 3.3500x from the previous auction.
- The strong demand came despite the bond’s outright yield being 20-25bps lower than the previous auction and around 30bps below the peak reached in May.
- However, the 10s/30s yield curve was back near its steepest level since 2021 — a potentially supportive technical factor.
- Sentiment toward longer-dated global bonds had improved, which may have assisted demand.
- In the wake of the auction, the ACGB Jun-54 has traded ~1.5bps richer in the secondary market.
