JAPAN DATA: Core Measures Post Upside Surprise, But Services Inflation Modest
Jun-20 00:13
Japan's May nationwide CPI saw headline at 3.5%y/y, which was as expected (the April outcome printed at 3.6%). The ex fresh food core measure rose 3.7%y/y (against a 3.6% forecast and 3.5% prior outcome). The measure which excludes fresh food and energy was 3.3%y/y, also above expectations and prior outcomes (3.2% forecast and 3.0% in April).
- The chart below plots these three inflation metrics in y/y terms. The core measures continue to accelerate and are tracking towards recent cycle highs, particularly for core, ex fresh food.
- The core measure which excludes all food and energy was 1.6%y/y, unchanged from the April outcome.
- In m/m terms, the headline rose 0.3%, and the core measures maintained positive trends. Goods prices rose 0.5%m/m, while services were +0.2%, although this often gets revised to flat. Our Japan policy team noted, "Services prices, a key BOJ focus for assessing the strength of the wage-price cycle, rose 1.4% y/y in May, slightly up from 1.3% in April, but remained below the 2% mark, indicating weak momentum and the need for further gains to achieve the BOJ’s inflation target sustainably."
- In terms of the sub-indices we had fresh food down -2.6%m/m, but aggregate food +0.3%m/m. Utilities rose 2.8%m/m, while household goods and entertainment were also up in the month. Transport and education both fell modestly.
- Given growth/trade uncertainties, today's print is unlikely to shift BoJ near term thinking. A point reinforced by the still sub 2%y/y level for services inflation.
Fig 1: Japan May Inflation Y/Y - Core Measures Post Slight Upside Surprise
Source: Bloomberg Finance L.P./MNI
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US TSYS: Cash Open
May-21 00:10
TYM5 is trading 110-08, up 0-01 from its close.
- The US 2-year yield opens around 3.954%, down 0.02 from its close.
- The US 10-year yield opens around 4.473%, down 0.01 from its close
- “KKR said government bonds are no longer effective “shock absorbers” against risky assets.”(BBG)
- “Tim Magnusson of Garda Capital Partners believes a rapid increase in yields is needed to motivate Congress to address the deficit, and warns that the bond market will eventually bring discipline to fiscal policy.”(BBG)
- “If President Trump's tax bill becomes law, the US national debt is expected to spike by trillions of dollars, causing investors in US debt to sell off bonds and drive up yields.”(BBG)
- The 10-year found sellers again back towards 4.40% overnight. A sustained break above 4.55/60% needed to see another round of selling targeting the 4.75% area. Support seen back towards 4.35/40%, dips back towards here should see supply emerge once more.
- Data/Events: MBA Mortgage applications, Richmond Fed President Tom Barkin , Fed Governor Michelle Bowman to participate in a “Fed Listens” event
MNI: JAPAN APRIL EXPORTS +2.0% Y/Y; MARCH +4.0%
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JGBS: Futures Little Changed Overnight, Long End Yields In Focus
May-20 23:40
In post-Tokyo trade, JGB futures closed little changed, +3 compared to settlement levels, after US tsys finished mixed but weaker at the long-end on Tuesday.
- The US 30-year finished 6.6bps higher at 4.969% after hitting 4.996%.
- Underlying tariff jitters remain, but it was fiscal uncertainties that kept the markets cautious today. President Trump met with House Republicans to get their support for the "big beautiful bill." Further reverberations from Friday's Moody's downgrade still weighed, and especially on longer-dated Treasuries with revived concerns over "selling America."
- Depending on how tariffs and their impacts play out, StL Fed Musalem suggested he could either support an easing bias, a "balanced" approach, or indefinitely holding rates. In the meantime, policy "is currently well-positioned."
- (Financial Times) -- 'Yields on the longest-dated Japanese government bonds surged to record highs on Tuesday after a dismal debt auction added to investor fears of a lack of demand."
- * Bloomberg - "The Bank of Japan likely remains on track to keep scaling back its bond buying at largely the current pace with scope to continue rolling back purchases beyond March 2026 after views of surveyed market participants diverged widely."
- * Reuters - "BoJ urged to boost bond buying in wake of spike in super-long yields reut.rs/3S9aspw: http://reut.rs/3S9aspw"
- Today, the local calendar will see Trade Balance data.
