JAPAN DATA: Tokyo CPI Below Forecast, Likely Adding To BoJ Wait & See Approach
Tokyo Sep CPI was noticeably weaker than forecast. All three inflation measures - headline, core ex fresh food, and core ex fresh food and energy, printed at 2.5%y/y. Expectations were in the 2.8-2.9% region. The core ex fresh food, energy measure was 3.0%y/y in August, so this is a noticeable slowdown. The chart below shows all three measures, which now sit comfortably off recent highs.
- In m/m terms, the headline measure fell 0.1%m/m, while ex fresh food was down 0.2% and the measure which also excludes energy fell by 0.3% in the month. Goods prices rose 0.2%m/m, but services fell by 0.4% (which has been and remains a BoJ watch point).
- The measure which excludes all food and energy fell by 0.7% in the month, although this is not seasonally adjusted.
- Looking at the sub sectors, drags came from utilities, -1.6%m/m (although the Aug fall was 5.1%). Entertainment fell by 2.6%m/m, after a 2.2% gain in Aug. Transport was down 0.7%m/m, while household goods fell by 0.6%.
- Food was up 0.6%m/m, with fresh food +3.3%, while clothing and footwear rose 3.3%.
- BBG notes: "The Tokyo government’s move to expand free daycare and lower water costs exerted a drag on the index, while energy prices pushed up the index due to year-on-year comparisons exaggerated by utility subsidies.'
- Still, in y/y terms, only 3 categories have a pace above 2% y/y (food at 6.1%, clothing at 4.0% and transport at 3.2%).
- The data likely adds to the case for the BoJ to maintain a wait and see approach around policy in the near term.
Fig 1: Tokyo Sep CPI Trends Softer Than Expected
Source: Bloomberg Finance L.P./MNI
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US TSYS: Cash Open
TYU5 is trading 112-04+, down 0-02 from its close.
- The US 2-year yield opens around 3.65%, down 0.03 from its close.
- The US 10-year yield opens around 4.265%.
- Andrew Ackerman on X: “The Fed has deferred any decision on Cook's status because they are expecting a quick decision from a court on Cook's coming request for a judicial order/TRO, according to a Fed official. Would note the Fed has no board meetings scheduled for this week, while Cook is in limbo.”
- “Trump says he may shift Stephen Miran into Lisa Cook’s Fed seat—while the White House has also probed whether Miran can serve at the Fed without leaving the White House. Senate Republicans balked, I was told, but the idea may not be dead. https://www.washingtonpost.com/politics/2025/08/26/trump-fed-control-lisa-cook-economy/”
- 10-Year Yields found buyers above 4.30% again overnight. While the 4.35% area continues to hold, bounces should be met with demand, with the 30-Year taking the brunt of the selling related to challenging the Fed independence. First target is the recent lows around 4.18% then the bottom of the range towards 4.10% comes back into focus.
- Data/Events: MBA Mortgage Applications
JGBS: Futures Finish Up From Lows, But Downside Risks Persist
The Sep JGB future finish up at 137.33, -.03 versus settlement levels post yesterday's Tokyo close. The intra-session low from yesterday was at 137.22, which was sub late July lows. Focus remains on downside risks to futures, with the 10yr JGB yield biased higher amid fiscal concerns/lack of bond demand. In terms of technicals, a test lower would signal scope for an extension towards 136.57, a Fibonacci projection.
- As noted yesterday: "Japan's Ministry of Finance made an initial request of 32.4 trillion ($219 billion) for next fiscal year's debt financing needs, reflecting the impact from rising Japanese bond yield The requested amount was up around 15% from the previous fiscal year's initial budget" (via BBG).
- While BBG added: "Investors are getting so desperate to lighten their holdings of Japanese government bonds that some are willing to sell the securities at a discount to the central bank." (see this link for more details).
- In terms of cash JGB yields, the 10yr finished up yesterday at 1.63%, which was a fresh high back to 2009, while the 10yr swap rate was around 1.44%.
- The local data calendar remains empty today, with focus on Friday's August Tokyo CPI print. Note that tomorrow we hear from BoJ board member Nakagawa who will deliver a speech in Yamaguchi.
GOLD: Gold Stronger On Fed Uncertainty
Gold rose on news that President Trump was removing Fed Governor Cook and then added to these gains during the US session. It was up 0.8% to $3393.57/oz, close to the intraday peak, and 3.2% higher this month. It has started today around $3392.2. It was supported by a lower US dollar (BBDXY-0.2%) and lower Treasury yields. If the Fed is skewed with dovish members, then more easing is likely which is positive for non-interest bearing bullion.
- The interference in Fed independence drove safe-haven flows into gold. There has been constant pressure from the administration for the Fed to cut rates. If Trump can replace Cook, then he can have four of the seven FOMC members and possibly engineer more dovish monetary policy.
- Lisa Cook said Trump doesn’t have the authority to fire her. The Fed said it will abide by the decision of the court on whether she behaved unethically.
- Silver rose 0.1% to $38.611 off the intraday low of $38.340. It is now up 5.2% this month. It currently around $38.688.
- Equities were mixed with the S&P up 0.4% but Euro stoxx down 1.1%. The S&P e-mini is currently +0.1%. Oil prices were weaker with WTI -2.3% to $63.31/bbl. Copper fell 0.1%.
