CNY: USD/CNY Fixing Lower Friday

• CHINA SETS YUAN CENTRAL PARITY AT 7.0471 WED VS 7.0523

JGB futures have mostly tracked higher in early Wednesday dealings, supported by a higher US Tsy futures backdrop since the re-open. The March JGB future got to 133.10 before some selling interest emerged. We last track near 133.00, +.15 versus settlement levels. Headline focus has been on Japan's fiscal outlook for 2026. The debt servicing rate is expected to be at 3% for the 2026 financial year. This would be the highest rate since 1997 (when it was at 3.2%, per BBG). 

• Reports also suggest new government bond issuance for the 2026 financial year will be higher than the current financial year issuance (¥28.6trln), but remain under ¥30trln (via BBG). Rtrs reported yesterday that 2026 financial year issuance was expected to exceed the current year's. Further headlines via BBG, quoting NHK, state ¥29.6trln of new bonds will be issued in the 2026 financial year.
• The rise in debt servicing costs is reflective of higher longer dated yields and points to Japan's on-going fiscal challenges for the new Takaichi regime. It remains focused on boosting growth, but in a fiscally responsible way.   
• Market reaction to these headlines has been muted though. with JGB futures relatively steady, while outright yields are little changed. There is some softness in the middle part of the curve, while the 10yr is down a touch to 2.03%. 20-40yr tenors are up a touch in yield terms. Swap rates are lower, with the 10yr back to 1.83%.
• Earlier we had the Nov services PPI, which printed as expected at 2.7%y/y. This measure remains elevated but off recent highs. 

The BBDXY range overnight was 1201.20 - 1204.03, Asia is currently trading around {BBDXY Index}. The USD broke back below 1203-1204 yesterday and extended lower as risk continues to build on its end of year gains. The move last week had more to do with the surge higher in USD/JPY than any real USD strength as the moves elsewhere in currencies and more importantly in metals attest to. On the day, I suspect rallies to be faded while the 1210 area holds. First sell-zone is between 1204-1206, looking to retest the 1198-1200 support. 

• Bloomberg - “ The dollar is heading for its worst annual performance in eight years, and the options market is signaling that traders are preparing for more downside in the final sessions of 2025 and beyond.  {NSN T7QE1DKJH6V4 <GO>}” 
• The BBDXY Average True Range for the last 10 Trading days: 381 Points

Fig 1: BBDXY Weekly Chart

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