JAPAN: Local Media States PM Ishiba To Resign In August
Headlines have crossed from local newspaper Mainichi that PM Ishiba will resign by the end of August. Via Rtrs: "Japan's Prime Minister Shigeru Ishiba has made up his mind to resign, Mainichi newspaper reported on Wednesday."
- Earlier PM Ishiba wouldn't be drawn on speculation around his future, stating that he would assess the US-Japan trade deal details before making any decision.
- Still, in the aftermath of the weekend upper house result, which saw the ruling LDP coalition lose its majority, Ishiba's future has been speculated on.
- His removal odds per Polymarket has remained elevated this week, but sub recent highs.
- The market reaction has been for USD/JPY to rise, testing up through 147.00 (highs were at 147.20, but we sit back near 147.00 in latets dealings)Japan equities have also rallied further.
- JGB yields are higher across the curve so far today, with focus on the 40yr debt auction in a little while. Risks around fiscal slippage for Japan will remain elevated if Ishiba resigns.
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AUSSIE BONDS: Weaker After Early Strength Reversed
ACGBs (YM -1.0, XM -4.0) have weakened, reversing early modest gains following reports of US airstrikes on Iranian nuclear sites over the weekend.
- Outside of the previously outlined S&P Global PMIs (P), there hasn't been much by way of domestic drivers to flag.
- Cash US tsys are 1-2bps cheaper in today's Asia-Pac session.
- (Bloomberg) Australia’s 30+ day conforming mortgage arrears rose by 23bps q/q to 1.36% in 1Q, while non-conforming arrears rose more sharply by 39bps to 5.32%, Fitch Ratings says in a statement.
- Cash ACGBs are flat to 4bps cheaper with the AU-US 10-year yield differential -17bps.
- The bills strip has cheapened slightly, with pricing flat to -2.
- Today’s Nov-32 auction reflected solid pricing for ACGBs, with the weighted average yield coming in 0.74bps below prevailing mid-yields, according to Yieldbroker. Moreover, the cover ratio nudged higher to 3.3550x from 3.2100x in the previous auction.
- RBA-dated OIS pricing is modestly softer across meetings today. A 25bp rate cut in July is given an 84% probability, with a cumulative 74bps of easing priced by year-end.
JGBS: Modest Bear-Steepener At Lunch
At the Tokyo lunch break, JGB futures are cheaper, -25 compared to the settlement levels, and hovering just above session lows.
- Jibun Bank PMIs(P) for June have printed: Manf Index rises to 50.4 from 49.4 in May; Services Index rises to 51.5 from 51 in May; and Composite Index rises to 51.4 from 50.2 in May.
- Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session after
- Cash JGBs are 1-3bps cheaper across benchmarks today, with a steepening bias. The benchmark 20-year yield is 1.4bps higher at 2.363% ahead of tomorrow’s supply.
- “Although 20-year bond issuance will be reduced by ¥1.8 trillion, the decline in yields from the peak in May suggests that it’s already priced in. Meanwhile, Tokyo inflation is set to land on Friday after a hot Japan print last week.” (per BBG)
- The swaps curve has bear-steepened, with rates 2-6bps higher. Swap spreads are mostly wider.
FOREX: JPY Crosses - JPY Longs Being Challenged
The market will now be concentrating on how long the US plans to be involved and if the conflict will become extended, the upward momentum of US equities seem to be stalling. ESU5 -0.35%, NQU5 -0.45%. With positioning extreme, the JPY has uncharacteristically remained better offered as the move in oil has become the main focus for the market.
- EUR/JPY - Friday night range 167.32 - 168.40, Asia is trading around 168.500. The pair gapped lower in early Asian trading(167.50) reacting to a poor open for risk . The dip though was again very well supported and the pair has already broken Fridays highs as a market caught long JPY is challenged.
- GBP/JPY - Friday night range 195.70 - 196.70, Asia trades around 196.80. Also found good bids on the gap lower this morning and is now attempting to break the multiple tops around 196.50/197.00. A move back above here and the focus will turn to the 200.00 area further challenging the JPY longs.
- NZD/JPY - Friday night range 86.99 - 87.38, Asia is currently dealing 87.20. NZD/JPY continues to see buyers on dips, a sustained break is needed above 88.00 for the market to turn its focus back to the 90.00 area.
- CNH/JPY - Friday night range 20.2210 - 20.3595, Asia is currently trading around 20.4000. Even CNY/JPY is starting to move higher with the broader JPY weakness, a break back above 20.65/70 would potentially get the bears concerned and we might start seeing some more positions unwound.
Fig 1 : GBP/JPY Hourly Chart
Source: MNI - Market News/Bloomberg Finance L.P
