US-JAPAN: Kato - Japan's Large US Tsy Holdings A Potential Negotiating Tool
Headlines have crossed from Japan FinMin Kato via Reuters. There was a notable comment where Kato stated that Japan's large US Tsy holdings are a potential tool to be used in trade negotiations. Kato added that whether Japan will use this tool is another question. Kato noted it was difficult to say whether this issue was discussed with US Tsy Bessent at the meeting the parties had in Washington.
- This will be a watch point for markets, as it raises the question of whether Japan may sell US Tsy holdings if it deems it is isn't getting a fair deal on tariffs from the US Administration as part of broader trade deal negotiations.
- We clearly aren't at that point yet, but these comments suggest the market needs to be mindful of such risks.
- Kato added the primary purpose of its US Tsy holdings is to have enough funds to conduct FX intervention.
- Other comments by Kato noted that the two sides didn't discuss where USD/JPY FX levels should be. Kato reiterated that Japan is not manipulating FX levels and that it must explain this carefully to the US (via RTRS).
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BONDS: NZGBS: Richer With US tsys Ahead Of Liberation Day
In local morning trade, NZGBs are 3bps richer after a decent NY session for US tsys ahead of Liberation (tariff) Day announcements as accounts squared positions ahead of Wednesday afternoon's announcement from the White House (1600ET est).
- There was early FI support after lower-than-expected JOLTS job openings, quits and layoffs higher-than-expected. ISMs mixed with Mfg, new orders and employment lower-than-expected, while prices paid jumped.
- Washington Post reports that "White House aides have drafted a proposal to impose tariffs of around 20 per cent on at least most imports to the United States, three people familiar with the matter said".
- The WSJ notes: "The U.S. Trade Representative's office is preparing a third option of across-the-board tariff on a subset of nations that likely would not be as high as the 20% universal tariff option, according to people with knowledge of the plans."
- NZ home-building approvals rose 0.7% m/m in February.
- Swap rates are 2-4bps lower, with the 2s10s curve flatter.
- RBNZ dated OIS pricing is little changed. 24bps of easing is priced for April, with a cumulative 72bps by November 2025.
- The local calendar will show CoreLogic Home Value and ANZ Commodity Price data tomorrow.
AUSSIE 3-YEAR TECHS: (H5) Contract Highs
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.730/932 - High Sep 17 / 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.370 - High Mar 31
- PRICE: 96.360 @ 15:30 GMT Mar 01
- SUP 1: 95.900 - Low Jan 14
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
Aussie 3-yr futures are again pressing toward new contract highs - clearing resistance on the continuation contract. A close at current or higher levels opens 96.730, the Sep 17 ‘24 high. On the downside, a stronger reversal lower from current levels would signal a resumption of a downtrend. A deeper sell-off would refocus attention on 95.760, the 14 Nov ‘24 low.
US: WSJ Reports USTR Preparing Another Tariff Option For Trump
Headlines crossed a short while ago from the WSJ around a potential new tariff option being prepared by the USTR for Trump.
- The WSJ notes: "Trump's team in recent days has considered imposing a 20% universal tariff on virtually all imports, versus a reciprocal plan that would apply different tariffs to different countries. But the U.S. Trade Representative's office is preparing a third option-an across-the-board tariff on a subset of nations that likely would not be as high as the 20% universal tariff option, according to people with knowledge of the plans." See this link for more details.
- This follows overnight reports from Tuesday: The Washington Post reports that "White House aides have drafted a proposal to impose tariffs of around 20 percent on at least most imports to the United States, three people familiar with the matter said,".
- Also from the White House: "White House Press Secretary Karoline Leavitt has indicated to reporters that President Donald Trump’s reciprocal tariffs will be “effective immediately” following Trump’s White House Rose Garden announcement tomorrow, expected to take place around 16:00 ET 21:00 BST."
