JAPAN DATA: Local Investors Buy Offshore Bonds & Equities
Japan outbound investment flows were positive in the week ending May 9, see the table below. The strongest flows were into offshore bonds, with just under ¥2trln of net purchases for this segment. This marks the third out of the last four weeks we have seen positive net flows to overseas bonds. Still, since the start of March, cumulative net flows are modestly negative. Global bond returns are down noticeably over the past week, with US Tsy yields firming and acting as a headwind to returns.
- Local investors also continued to buy overseas equities, marking the eighth straight week of net buying for this segment. Net buying was down from the prior week's heady pace.
- In terms of offshore inflows into Japan, trends were relatively muted last week. Japan markets were on holiday for the first two days of last week, which may have impacted such trends.
- Offshore inflows remained positive into local stocks for the fifth straight week.
Table 1: Japan Weekly Offshore Investment Flows
| Billion Yen | Week ending May 9 | Prior Week |
| Foreign Buying Japan Stocks | 439.0 | 968 |
| Foreign Buying Japan Bonds | -141.1 | -912.7 |
| Japan Buying Foreign Bonds | 1923.2 | -541.2 |
| Japan Buying Foreign Stocks | 250.8 | 2545.4 |
Source: MNI - Market News/Bloomberg
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US TSYS: Cash Open, Slightly Mixed After Yesterday's Strong Session
TYM5 is trading 110-21, - 0-03 from its close.
- Yesterday, risk stabilised and US yields benefited as money was put back to work.
- The 10-year yield is dealing in Asia around 4.3775%, after closing at 4.3739%.
- The market has been forced to reduce the number of cuts it was expecting as the FED has been consistent in saying it was worried about inflation due to the President’s policies.
- Bostic spoke this morning: ”Right now range of possible outcomes has multiplied. Inflation is still much higher than target. Not in a position to boldly move in any direction, need more clarity.” (via RTRS/BBG)
- Treasury Secretary Scott Bessent rejects speculation that foreign nations are dumping their US Treasury holdings, citing increased foreign demand at recent auctions.
- Bessent attributes the recent bond market selloff to deleveraging, saying he has no evidence that sovereigns are behind the decline.
- He notes that the Treasury Department has tools to address dislocation if needed, including a buyback program for older securities, but says they are "a long way" from needing to take action. (via BBG)
- The 10-year yield will continue to find sellers on dips, expect any move back towards the 4.25/4.30 area to find supply.
JGBS: Futures Weaker Overnight, US Tsys Richer, 20Y Supply Due
In post-Tokyo trade, JGB futures closed weaker, -12 compared to settlement levels, despite US tsys finishing solidly richer amid ongoing tariff uncertainty.
- Information Technology sector shares led gainers despite ongoing tariff uncertainty after Trump denied that US officials said smartphones, computers, and other consumer electronics were excluded from tariffs over the weekend.
- "There was no tariff exception" announcement Trump said, while officials are "looking at chips, whole electronics supply chain; chips to be assessed in national Security tariff probes." Nevertheless, "markets very strong once they got used to tariffs" Trump posted Monday.
- Sentiment improved after midday on a couple of items: Pres Trump said he was "exploring possible exemptions to his tariffs on imported vehicles and parts" while Fed Gov Waller called for "flexible" monetary policy while also maintaining his view that the inflationary effects of tariffs are likely to be temporary.
- On Monday, BoJ Governor Ueda said global and domestic economic uncertainty has increased sharply due to US tariff policy. "U.S. tariffs will likely put downward pressure on global and Japanese economies through various channels," Ueda told parliament. (per RTRS)
- Today, the local calendar will be empty apart from 20-year supply.
JPY: USDJPY - Move Lower Takes A Pause
The range overnight was 142.24 - 144.08, price opens in Asia in the middle of that range around 143.10/15. USD/JPY once again found buyers overnight putting in a low near 142.00 for the second day running as broader risk trends seemed to stabilise.
- At the House of Representatives Budget Committee on the 14th, Prime Minister Ishiba Shigeru expressed a cautious stance on fiscal spending that relies on deficit bonds when implementing new economic measures. Opposition parties criticized the cash handout proposal.
- There had been rumours Japan had been a seller in US bonds. Bloomberg reports that the chance of this happening is nearly zero as Scott Bessent looks to prioritize Japan among allies in trade negotiations.
- The price action in USD/JPY in particular shows how the perception of the US is changing and the belief in its exceptionalism is being challenged. If this view pervades, expect the move lower in the USD to intensify.
- USD/JPY traded most of last week in free fall, so it is healthy for the market to take a breath and see some consolidation. Expect sellers back towards 144/145 on the day with some options around, a break of the 142.00 lows would see another leg lower.
- Watching the long term pivotal area around 140.00 a break sub this level would be significant, opening up a bigger move back to 125/130.
- USD/JPY: Y144.00($1.4bln), Y145.00($1.9bln) EXP April 15 NY cut (source DTCC).
Fig 1: USD/JPY Spot
Source: MNI - Market News/Bloomberg
