JAPAN DATA: Local Investors Offshore Bond Purchases Surge In Recent Weeks
The standout last week, was the continued rise in Japan buying of offshore bonds. In the past two weeks, we have seen just over ¥4.75trln in net buying in this space. This pushes year to date flows back to positive territory. This pick up comes despite a turn down in global bond returns. This trend has continued this week, given sharp moves higher in back end US Tsy yields. Still global returns are well above earlier 2025 lows.
- Local Japan investors sold offshore equities for the first time since mid March last week, ending a strong run of outflows.
- In terms of inflows into Japan, we saw a continued net buying of local stocks. This marked the seventh straight week of net inflows into this segment.
- In contrast, offshore investors remained net sellers of local bonds for the third straight week. Again, given the surge higher in JGB yields this past week, such trends will be a watch point for the market. Inflows from offshore investors had been quite strong in April for local bonds.
Table 1: Japan Weekly Offshore Investment Flows
| Billion Yen | Week ending May 16 | Prior Week |
| Foreign Buying Japan Stocks | 714.9 | 439.4 |
| Foreign Buying Japan Bonds | -241.4 | -141.3 |
| Japan Buying Foreign Bonds | 2824.6 | 1928.7 |
| Japan Buying Foreign Stocks | -226.3 | 250.8 |
Source: MNI - Market News/Bloomberg
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AUSSIE BONDS: Twist-Steepening As Trading Resumes, Trump v Powell In Focus
ACGBs (YM +6.0 & XM -3.0) have twist-steepened after US tsys finished mixed on Monday. The US 2-year yield was down 4bps to 3.76%. The long end was underwater, with the 30-year rate rising 10bps to 4.90% amid inflation angst and fiscal worries. The US 10-year yield ranged between 4.3287% - 4.4185%, closing near the high around 4.41%, 8 bps higher.
- US markets were impacted by ongoing uncertainty over tariffs and rising concerns over Fed independence. President Trump's further verbal attacks on Fed Chair Powell appeared to heighten concerns over the soundness of US assets and unnerved investors.
- Cash ACGBs are 7 bps lower to 1 bp higher with the AU-US 10-year yield differential at -12 bps.
- Swap rates are 6bps lower to 1bp higher, with the 3s10s curve steeper.
- The bills strip has bear-flattened, with pricing +2 to +6.
- RBA-dated OIS pricing is 1-8 bps softer across meetings today. A 50bp rate cut in May is given a 25% probability, with a cumulative 122bps of easing priced by year-end (based on an effective cash rate of 4.09%).
- Today, the local calendar will be empty.
- This week, the AOFM plans to sell A$1000mn of the 3.25% 21 April 2029 bond on Wednesday.
JPY: Eyes Pivotal 140.00 Area
The range on Monday was 142.14 - 140.48, price opens in Asia near the lows around 140.70/80. Price action is very clear, any move back towards risk aversion will see the purchase of JPY accelerate.
- Concerns President Trump will fire Fed Chairman Jerome Powell added to a market that is already consumed with uncertainty.
- “BOJ Officials see little need to change their gradual rate hike stance despite US trade uncertainties, " people familiar said. They are considering cutting inflation forecasts due to a stronger yen and cheaper oil.” (per BBG)
- Prime minister Ishiba Shigeru stated the government will do everything in its power to provide support to small and medium sized businesses affected by the US tariffs.
- Regarding tariff negotiations, he expressed the view that US President Trump places the highest priority on eliminating trade deficits with countries around the world, including Japan.
- Regarding non-tariff barriers on automobiles, about which the US side has expressed dissatisfaction, he said, “ we will work things out properly so that they are not described as unfair,” indicating his intention to consider how to respond. (per BBG)
- 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 and USD/JPY the favourite vehicle to express this in currencies.
- On the day expect sellers back towards 142/143, traders will be watching the long term pivotal area around 140.00 a break would really see this move accelerate opening up a bigger move back to 125/130.
- CFTC data shows Asset managers continuing to add to longs, while leveraged are only just starting to get long.
- USD/JPY: upcoming notable strikes, 140.00($1.61b), 145.00($1.38b) Exp Apr 24 NY cut (Source DTCC).
- Data : The IMF releases its World Economic Outlook tonight.
Fig 1 : USD/JPY CFTC Weekly Data
Source: MNI - Market News/Bloomberg
OIL: Global Demand Worries Pressure Crude Lower
Oil prices fell sharply on Monday on persistent concerns that increased US protectionism will reduce global energy demand and the deterioration in risk appetite driven by ongoing pressure from the White House for the Fed to cut rates. The subsequent US dollar weakness was unable to provide support (BBDXY USD index -0.7%).
- WTI (June contract) fell 2.1% to $62.69/bbl remaining well above initial support at $55.12 though. The benchmark is down 11.6% this month. It has started today higher at $62.92.
- Brent was 2.2% lower at $66.47/bbl following a trough of $65.67. Initial support is at $62.00. It is now down 11.1% in April.
- US tariff announcements have worried oil markets from the start but yesterday China threatened countries negotiating with the US not to agree to anything that is against China’s interests, which could escalate trade tensions.
- Talks between the US and Iran will resume on Wednesday, which is already seen as a good sign. The Iranian foreign minister said that there is now a “better understanding” with the US, as reported by Bloomberg. The outcome is likely to be important for Iran’s oil outlook.
