JAPAN DATA: Local Investors Sell Offshore Debt, But Recent Trends Still Positive
Offshore flows for Japan bond and equity markets were mixed last week. Local investors sold offshore bonds for the first time since early June. Since mid June we have had cumulative buying for this segment of over ¥5.6trln, including the modest outflow last week. Hence the trend still remains positive for Japan purchases of offshore debt. Global bond returns are off early July cycle highs but remain well up for the year. Local investors bought overseas equities for the second straight week, but the cumulative trend over recent months remains negative.
- In terms of inbound flows, offshore investors continued to buy local stocks. Indeed, since the start of April we have only had one week of outflows for this segment. Cumulative buying of Japan stocks over this period is nearly ¥10trln.
- Offshore investors sold local bonds last week, marking the third in the last four weeks we have seen net selling. Cumulative buying is still modestly positive for the past two months.
Table 1: Japan Weekly Offshore Investment Flows
| Billion Yen | Week ending July 25 | Prior Week |
| Foreign Buying Japan Stocks | 743.3 | 571.9 |
| Foreign Buying Japan Bonds | -184.6 | -990.7 |
| Japan Buying Foreign Bonds | -331.6 | 1643.8 |
| Japan Buying Foreign Stocks | 206.3 | 333.6 |
Source: Bloomberg Finance L.P./MNI
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MNI: MNI BOJ JUNE TANKAN LARGE MFG INDEX +13; MAR 12; MEDIAN 9
- MNI BOJ JUNE TANKAN LARGE MFG INDEX +13; MAR 12; MEDIAN 9
- BOJ SEPT TANKAN LARGE MFG INDEX FORECAST AT +12
- BOJ TANKAN LARGE NON-MFG INDEX +34; MAR 35; MEDIAN 34
- BOJ SEPT TANKAN LARGE NON-MFG INDEX SEEN AT 27
JGBS: Futures Stronger Overnight With US Tsys, US Trade Talks Remain In Focus
In post-Tokyo trade, JGB futures closed stronger, +8 compared to settlement levels, after US tsys finished 3-6bps richer with a flatter curve.
- The moves come amid President Trump stepping up his criticism of Fed Chair Powell and his ‘entire board’ over the level of US interest rates. Notably, Goldman Sachs has also called for the next Fed cut to September.
- Also note: Morgan Stanley strategists suggest buying SFRZ5 futures ahead of tomorrow's May Jolts and Thursday's June Non-Farm Payrolls release that may underpin rate cut projections that are over halfway between 50bp to 75bp in rate cuts by year end. "Downside risks to US labour market data remain underpriced, especially considering the potential for near-zero payroll prints starting as soon as July," MS suggested in a recent strategy piece.
- Bloomberg - "Trump threatened more penalties against Japan over what he said was the country's unwillingness to accept US rice, with Kevin Hassett saying talks aren't over."
- Bloomberg - "The 25% sectoral tariff on automobiles - a key sector for Japan - remains a sticking point in trade talks with the US as Prime Minister Shigeru Ishiba's team continues to push hard for concessions."
- Today, the local calendar will show data from the Tankan Index, S&P Global PMI Mfg, and Consumer Confidence Index alongside 10-year supply.
AUSSIE BONDS: Flat, US Tsys Bull-Flatten, House Prices Up
ACGBs (YM flat & XM flat) are little changed after a bull-flattener from US tsys.
- Amid the renewed focus on rate differentials in FX, the bull flattening move for the US curve has helped the US dollar extend its most recent weakness, with the dollar index falling around 0.5% to fresh cycle lows (March 2022 levels).
- Australian home prices rose for the fifth consecutive month, driven by interest-rate cuts and expectations of more cuts, with every major mainland city recording a rise. The Home Value Index advanced 0.6% in June. (BBG)
- S&P Global June Manufacturing PMI falls to 50.6 from 51 in May.
- Cash ACGBs are little changed with the AU-US 10-year yield differential at -7bps.
- The bills strip is slightly mixed, with -1 to +2.
- RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut in July is given a 94% probability, with a cumulative 81bps of easing priced by year-end (based on an effective cash rate of 3.84%).
- This week, the AOFM plans to sell A$1200mn of the 2.75% 21 June 2035 bond on Wednesday and A$1000mn of the 2.25% 21 May 2028 bond on Friday.
