BONDS: Modestly Cheaper Ahead Of Heavy Local Calendar Tomorrow

At the Tokyo lunch break, JGB futures are weaker but above lows, -36 compared to settlement levels, as trading resumes after the long weekend.

• Cash US tsys are slightly richer in today's Asia-Pac session after yesterday’s modest sell-off.
• Cash JGBs has bear-steepened across benchmarks, with yields 2-5bps higher. Long-end yields are, however, off session highs.
• (Bloomberg) “The 30-year government bond yield surges as much as 12 basis points to 3.52% on Tuesday, as speculation that Prime Minister Sanae Takaichi might dissolve the parliament as soon as next month grows following local media reports.”
• Nonetheless, today’s current move leaves the 2/10 curve around a fresh cycle, steepest since 2011.
• The benchmark 10-year yield is 4.4bps higher at 2.141% versus today’s fresh cycle high of 2.162%.
• Swap rates are mixed but little changed. 

Source: Bloomberg Finance LP

The clear break above 158.00 in USD/JPY has seen fresh jawboning emerge from Japan officials, although net market impact remains minimal at this stage. Earlier FinMin Katayama stated concern around one-sided FX moves, which she shared with US Tsy Bessent in recent talks (who also agreed with the FinMins concern) . The Deputy Chief Cabinet Secretary Ozaki has reiterated concern this around one-sided, sharp FX moves and stated the government is ready to take steps to tackle excess volatility, including speculative moves. Broadly the market, for now at least, is taking these comments in its stride, and appears comfortable to continue to test the authorities resolve. We were last at fresh highs of 158.65/70. Below is a series of charts that we monitor, they arguably show intervention risks are heightened, but no more so than they were in late 2025. 

• USD/JPY spot remains comfortably above our simple fair value estimate (see top left hand panel), which is written off US-JP 2y swap spreads and global equities. The differential between the two is back around 4% amidst a resilient global equity backdrop (fair value around 152.4). The wedge did close close to 6% in Nov last year.
• The 1month and 3 months rate of change are trending back up, but also remain sub late 2025 highs, top right hand panel chart.
• Market positioning shows leveraged contracts short, per CFTC, but asset managers still long, see the bottom left hand panel chart. The authorities will tend to focus more on speculative positioning (proxied by leveraged contracts), but aggregate positioning (leveraged + asset manager) is not as short as it was in 2022 or 2024 (close to -150k in 2022, -200k at its trough point in 2024, current is around -20k).
• The bottom right hand panel is the 1 month risk reversal and 1 month implied vol. Risk reversals are sub late 2025 highs, while implied vols are painting a fairly benign backdrop, which fits with a still supportive carry back drop for USD/JPY from a broader risk standpoint. 

Fig 1: USD/JPY - Various Metrics Compared To Prior Intervention Episodes 

Source: Bloomberg Finance L.P./MNI 

The overnight range was 1.1663 - 1.1699, Asia is currently trading around {EURUSD Curncy}. The pair found sellers again back toward 1.1700 capping the knee-jerk reaction to the Fed news. We are firmly back in the wider 1.1450-1.1850 range which dominated the last 6 months of the year and we need a catalyst to get a break and some sort of a trend going again. On the day it looks likely we tread water within a narrower 1.1600-1.1725 range as the market looks for a trigger to regain some momentum.

• The EUR/USD Average True Range for the last 10 Trading days: 43 Points

Fig 1 : EUR/USD Spot Daily Chart

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