EM ASIA CREDIT: Khazanah Capital: Possible $ exchangeable

At the Tokyo lunch break, JGB futures are weaker, -39 compared to the settlement levels, and hovering just above the session’s worst level.

• Cash US tsys are ~2bps cheaper in today's Asia-Pac session after Friday's heavy close.
• The BoJ is expected to keep its policy rate unchanged at 0.50% at its June 16-17 meeting. The key area of interest will be Governor Kazuo Ueda’s post-meeting press conference. Investors will closely examine his comments for any signals on the timing and likelihood of future rate hikes. If the BoJ begins to hint at stronger underlying inflationary trends or shows greater optimism about the economy, it could stoke expectations of a rate hike in the autumn.
• The second area of market focus is on the BoJ’s JGB purchase program. Market expectations suggest a slower pace of reductions during fiscal year 2026. If the BoJ chooses to maintain the current pace of ¥400 billion reductions per quarter in FY2026, this would be interpreted as a mildly hawkish move.
• Cash JGBs are flat to 3bps cheaper across benchmarks, with the futures linked 7-year leading. The benchmark 10-year yield is 2.2bps higher at 1.43% versus the cycle high of 1.596%.
• Swap rates are flat to 2bps lower. Swap spreads are tighter.

BNZ’s manufacturing and services PMIs both deteriorated in May and are below the breakeven-50 level and senior economist Steel warned that they are consistent with a return to a recession. With rates now in the “neutral zone” and the RBNZ Governor Hawkesby saying the MPC doesn’t have a bias, it looks like the RBNZ will be on hold on July 9 as it waits for more data, but it does monitor these indices and they suggest that the meeting will be “live”. The June PMIs are not released until July 10 & 13. 

NZ BNZ PMI vs PSI

Source: MNI - Market News/BNZ/LSEG

• The performance of services index fell 4.1 points to 44.0 in May, the lowest since June 2024 signalling that the sector contracted at its fastest rate in almost a year. The decline was driven by sharp drops in new orders and activity/sales. All components are in negative territory.
• BNZ noted that negative comments from services businesses rose to 65.6% in May from 61.8% in April and 56.7% in March. They cited “rising costs, economic uncertainty and low consumer confidence” as reasons for the increase and that customers remain cautious.
• Services employment fell at a slightly faster pace in May at 47.2 than April’s 47.9. There was also job shedding in the manufacturing sector with the employment index falling to 45.7 from 54.6, the lowest since July 2024 and suggesting that recent global developments have impacted hiring plans. This does not bode well for Q2 employment with both sectors so weak.
• The manufacturing PMI in May shifted into contractionary territory for the first time in 2025 at 47.5 with all components except inventories contracting. New orders deteriorated to 45.3 from 50.8.

NZ BNZ PMI vs PSI - Employment

Source: MNI - Market News/BNZ/LSEG

US stocks have bounced after initially trying lower this morning. The US stock market continues to be very well supported on dips. A market that was caught very short all the way up and has now been forced back in is very reticent to attempt to sell it again. ESA +0.2%, NQA +0.3%, US 10-year 4.418%. JPY crosses are not trading like the market sees risk capitulating in the near term.

• EUR/JPY - Friday night range 165.49 - 166.59, Asia is trading around 166.50. Friday night saw the reversal of the move lower in Asia. First support seen back towards 163/164, a sustained break back below 161.00 is needed to change the direction.
• GBP/JPY - Friday night range 194.72 - 195.97, Asia trades around 195.60. GBP/JPY found very good demand back towards 194.00 on Friday, a sustained break above 196.50 is needed to extend higher until then the range looks 192.00 - 196.50. 
• NZD/JPY - Friday night range 86.29 - 87.04, Asia is currently dealing 86.90. The support back towards 86.00 proved to be solid on Friday night, market looks to be 85.50 - 88.00 for now.

• CNH/JPY - Friday night range 19.9580 - 20.1013, Asia is currently trading around 20.0900. CNY/JPY struggled to bounce as much as the other crosses but traded sideways for now in a 19.70 - 20.30 range, a move back below 19.70/75 is needed to see this begin to accelerate.

  Fig 1 : GBP/JPY Daily Chart

  

  Source: MNI - Market News/Bloomberg Finance L.P