FOREX: JPY Slippage Extends, USD Rally Contained by Lower Long-End

• Firmer equity sentiment since the open has allowed the likes of AUD and NZD to outperform in G10 currency markets on Monday, capitalising on the bearish dollar sentiment following the softer-than-expected US employment report.
• As a result, AUDUSD (+0.41%) has traded within one pip of the Friday highs and the latest price action has helped the pair consolidate above short-term resistance of 0.6569, which was cleared last week. This places the market’s interest back on the 0.66 handle, of which we have only had one daily close above since the US election related volatility back in November 2024.
• Key resistance and the bull trigger are located at 0.6625 (Jul 24 high), of which a breach would strengthen the underlying bullish trend. The next targets for the move would be 0.6688 (Nov 07 high) and 0.6700, the 76.4% retracement of the Oct-Apr selloff.
• Japanese politics has also boosted AUDJPY (shown below) by a solid 0.62% today, with the cross hovering once again below some important chart levels. A break of 97.43 would place the cross at the highest levels since January. The 2025 highs come in at 99.17.

Source: Bloomberg Finance L.P. / MNI

Japanese investors purchased JPY2.6trln worth of US Treasuries in July, according to latest Balance of Payments data, more than unwinding the JPY605bln of net sales seen in June. Year-to-date, Japanese investors have purchased JPY5.6trln of USTs. 

• It highlights that despite ongoing US political/trade policy uncertainty and Fed independence concerns, there aren’t many alternatives to US assets for a country with as large a current account surplus as Japan (almost 5% of GDP as of Q2 2025). A reminder that the current account surplus must by definition be balanced by capital outflows in the form of direct/portfolio investment abroad (alongside other financial account components).
• Elsewhere, Japanese investors purchased around JPY335bln of German and French bonds in July.
• Over the next few months, it will be interesting to see if French flows are impacted by the latest uptick in political uncertainty. After President Macron called snap French legislative elections in May 2024, Japanese investors became notable sellers in OATs (see charts).
• Japanese investors sold JPY308bln of BTPs in July, while continuing to be steady net buyers of Gilts. Like France, it remains to be seen how Gilt flows are impacted by recent political developments ahead of the Autumn budget. 

Ireland has announced it will be looking to sell a combined E1.0-1.5bln of the following at its auction this Thursday, September 11:

• the 2.60% Oct-34 IGB (ISIN: IE000LQ7YWY4)
• the 3.00% Oct-43 Green IGB (ISIN: IE000GVLBXU6)