JAPAN DATA: Japan Offshore Bond Purchases Pick-Up
The highlight of Japan offshore investment flows, in the week ending Aug 29, was the surge in buying of overseas bonds. Just over ¥1.4trln in bonds were purchased, the largest flow into this segment since mid July. This ends a run of modest net selling of offshore bonds by local investors through much of late July/first part of August. Cumulative flows have been strong since May of this year. Global bond returns picked up through late August, but remained sub earlier 2025 highs.
- Japan investors also purchased offshore equities, but trends in this space have been mixed, with 3 out of the last 5 weeks still recording net selling.
- In terms of inflows into Japan assets, we saw net selling by offshore investors of local stocks for the 2nd straight week. This follows a basically un-interrupted run of inflows back to April of this year. Japan stocks have struggled since making fresh record highs in mid August.
- On the bond side, offshore investors were modest net buyers of local bonds.
Table 1: Japan Offshore Weekly Investment Flows
| Billion Yen | Week ending Aug 29 | Prior Week |
| Foreign Buying Japan Stocks | -785.7 | -496.2 |
| Foreign Buying Japan Bonds | 397.4 | -105.8 |
| Japan Buying Foreign Bonds | 1419.8 | -167.2 |
| Japan Buying Foreign Stocks | 481.8 | -306.1 |
Source: Bloomberg Finance L.P./MNI
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US TSYS: Cash Open
TYU5 is trading 112-15, up 0-03 from its close.
- The US 2-year yield opens around 3.665%, down 0.01 from its close.
- The US 10-year yield opens around 4.185%, down 0.1 from its close.
- Bloomberg - “The Fed may need more than two rate cuts this year, Mary Daly told Reuters. “I was willing to wait another cycle, but I can’t wait forever,” she said.”
- Bloomberg - “Banks are generally lowering spreads on the loans they do approve for larger borrowers. The latest SLOOS report points to slowing credit growth in the year ahead as banks become more discerning in their lending practices — especially for smaller and unsecured borrowers.”
- Peter Schiff on X: “Rate cuts are not a lock for September as the inflation data will likely come in hotter than expected between now and the next Fed meeting. The fact that markets are rallying in anticipation of rate cuts makes them even less likely. Stronger inflation trumps weaker job growth.”
- The 10-year yield had a powerful move lower in reaction to the NFP data, breaking below its 4.30% pivot within the wider range 4.10% - 4.65%. This now turns momentum lower in yields and you could expect buyers of treasuries on bounces back towards 4.30/35% now looking to initially test the 4.10% area.
- Data/Events: Trade Balance, S&P Global PMI’s, ISM Services
GOLD: Gold Continues Trending Higher, Above Initial Resistance
Gold prices trended higher on Monday after Friday’s 2.5% increase following weaker-than-expected US payroll data. It found support yesterday from the higher probability of a September Fed cut priced in and slightly lower US yields while the dollar was little changed. Bullion rose 0.3% to $3373.59/oz after a high of $3385.43 and has started today at $3378.1.
- Safe-haven flows also continue to support gold as the US’ effective tariff rate rose considerably on Friday and concerns over Fed independence persist following the resignation of Governor Kugler. While US President Trump has said he won’t replace Chair Powell before the end of his term, markets are worried that he will replace Kugler with someone sympathetic to his rate cutting view.
- Gold broke above initial resistance at $3373.6 on Monday and is trading above that level in Tuesday’s APAC session supporting the view that recent weakness was corrective. If the move is sustained, then the next level to watch is $3439.0, 23 July high, with the bull trigger at $3500.1. Initial support is at $3268.2, 30 July low.
- Silver rose 1% to $37.411 on Monday, close to the intraday high of $37.482 but still below initial resistance at $39.655. It remains in an uptrend with any sell off seen as corrective. Initial support is at $36.216, 31 July low. It has started today around $37.439.
- Equities rallied with the S&P up 1.5% and Euro stoxx +1.5% and the S&P e-mini is +0.1% so far today. Oil prices were lower again with WTI -1.6% to $66.24/bbl. Copper rose 0.5%.
JGBS: Futures Higher Overnight, BoJ Minutes & 10Y Supply Due
In post-Tokyo trade, JGB futures closed stronger, +19 compared to settlement levels, after US tsys rallied even after the extreme richening on Friday and in spite of upcoming Treasury supply.
- Fed rate cut bets and further declines in oil prices supported. The 2-year yield was fractionally lower at 3.68% but still 27bps below Thursday's level. The 10-year slid 2bps to 4.219%, extending the move down from 4.385% before the jobs data. It is the lowest since the end of April.
- "Japan is finally out of the grip of deflation that defined its lost decades - but now faces classic signs of stagflation. Inflation is climbing, buoyed by wage gains and rising price expectations. Fiscal policy is set to turn more expansionary after the government's upper house loss, adding inflationary pressure from the demand side. But the Bank of Japan is still taking a cautious approach to its next rate hike, even after a trade agreement with the US helped ease tariff uncertainty, viewing the recent price surge as transitory." - BBG
- Today, the local calendar will see the BoJ Minutes for the June Meeting alongside 10-year supply.
