MNI EXCLUSIVE: China Advisors On The Steel Outlook

USD/JPY tracks back near 154.60/65 in latest dealings. The pair hit earlier highs of 154.79, fresh highs since Feb of this year. Jawboning from FinMin Katayama has crossed a short while ago, which has helped temper the run higher in USD/JPY. Notably: "JAPAN FINMIN KATAYAMA: CLOSELY WATCHING FX MOVES WITH HIGH SENSE OF URGENCY, INCLUDING UNORDERLY, SPECULATIVE MOVES - [RTRS]"

• Katayama also stated that the disadvantages of a weaker yen are outweighing the advantages. This may be edging us closer to intervention risks, although remarks like, “We can’t tolerate speculative moves.” “We will take appropriate action if needed.” don't appear to be part of the verbal rhetoric yet. So far USD/JPY has been supported sub 154.60 on this pullback.
• Perhaps limiting USD/JPY downside so far has also been remarks from PM Takaichi, who again stated that Japan has not yet emerged from deflation and that she hopes the BoJ conducts policy which achieves the price target sustainably (i.e via wage growth).
• At face value these comments are again pushing back on fresh BoJ tightening in the near term. 

The RBA is unsure of the degree of its restrictiveness and if it’s not “mildly restrictive” there could be “implications” for policy as the economy may be at trend growth, according to comments from Deputy Governor Hauser this week. In November, the RBA assumed that around two-thirds of the Q3 underlying inflation increase was temporary but around one-third could be persistent. It was not just trimmed mean inflation that rose but other measures of core price pressures. Our Q3 PCA measure of underlying inflation rose 0.2pp to 2.8% but is still within the band.

• Measures of underlying inflation include trimmed mean, excluding volatile items such as food and energy, the median. We have one using principal components analysis (PCA) based on Bank of Canada research. Unlike Q2, not all of these were within the band in Q3.
• The chart below shows PCA CPI against other measures. It is less volatile, with a standard deviation below trimmed mean’s. After running ahead of trimmed mean from 2019 until mid-2021, it was below trimmed mean, CPI ex volatile items and ex food & energy in Q3.

Australia underlying inflation y/y %

Source: MNI - Market News/ABS/LSEG

• PCA is useful for when there are a large number of variables, as it finds common patterns that explain most of the variance in the data. In this case, it extracts the common movement in prices and thus creates a measure that reflects underlying developments in inflation and not sector-specific shocks.
• The share of CPI components above 3% also picked up in Q3 to 39% from 37% to be in line with Q4 2024.
• The median CPI has been stable through 2025 at just above 2%.

The BoJ offers to buy a total of Y720bn of JGBs from the market:

• Y300bn worth of JGBs with 1-3 Years until maturity
• Y305bn worth of JGBs with 5-10 Years until maturity
• Y115bn worth of JGBs with 10-25 Years until maturity