JAPAN: No Timeline On Economic Stimulus Package, Fiscal Discipline Eyed

Markets had been positioned for a cautious, wait-and-see approach from the BoJ at this meeting. 

• Nevertheless, at the time of writing, BOJ-dated OIS pricing was ~5bps firmer across meetings versus Friday’s pre-MPM levels.
• Moreover, post-MPM moves leave 2026 meetings 4-15bps firmer than early August levels.
• Current OIS pricing implies just a 50% probability of a 25bp hike in October, rising to 62% by November and 86% by December.

Figure 1: BOJ-Dated OIS – Today Vs. August 1, 2025 

Source: Bloomberg Finance LP / MNI 

The earlier first 20-days of September trade data for South Korea flashed a warning sign for global trade growth (albeit with caveats on the data). The chart below plots the daily average of the first 20-days export growth in y/y terms against global trade volumes, also in y/y terms. 

• The daily average which takes into account differences in working days between years, fell to -10.6%y/y in Sep, the weakest print since late 2023. The last time we were this soft global trade volumes was also in negative territory.
• Arguably the result may not surprise the market too much, given higher tariff levels are expected to weigh on trade growth as we progress towards the end of 2025.
• Also via BBG: "Monday’s trade data show a larger-than-usual gap between seasonally adjusted and unadjusted figures because of the shifting Chuseok holidays... The real question is how much momentum can be sustained after the Chuseok holidays.” 
• The headline figure was much stronger at +13.5%y/y for the first 20-days of Sep.
• This will be a watch point for the local authorities, given President Lee is keenly focused on boosting growth. More broadly, given South Korea's key role in global supply chains, the data will be watched for signs of broader trends in the global trade outlook. 

Fig 1: South Korea First 20-days Exports Y/Y (Daily Average) and Global Trade Volumes Y/Y 

Source: Bloomberg Finance L.P./MNI 

ACGBs (YM -3.5 & XM -5.0) are weaker and at cheaps.

• In today’s testimony to the House of Representatives Standing Committee on Economics, RBA Governor Bullock stated that the RBA expects recent interest rate cuts to support household and business spending. Labour market conditions are near full employment, though unemployment has risen slightly since the last meeting, with some tightness remaining. Household consumption growth is expected to continue as real incomes rise. Since the August meeting, domestic data have been broadly in line with or slightly stronger than expectations. The overall economic outlook remains clouded by uncertainty.
• Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session after Friday’s modest sell-off.
• Cash ACGBs are 3-4bps cheaper with the AU-US 10-year yield differential at +14bps.
• The bills strip is -3 to -4 across contracts.
• RBA-dated OIS pricing is giving a 25bp rate cut in September a 5% probability, with a cumulative 27bps of easing priced by year-end.
• August CPI data is due on Wednesday.
• This week, the AOFM plans to sell A$300mn of the 4.75% 21 June 2054 bond on Tuesday, A$1000mn of the 3.00% 21 November 2033 bond on Wednesday and A$900mn of the 2.75% 21 November 2029 bond on Friday.