FOREX: USDJPY Extends Intra-Day Recovery to 1.25%
May-27 09:25
- The greenback trades on a firmer footing on Tuesday alongside the step lower for long-end core yields and the prevailing optimism for major equity benchmarks. As noted, long-end JGBs are outperforming after Reuters sources suggested the MOF will consider skewing the composition of its current issuance programme away from super-long-end instruments.
- This dynamic has helped USDJPY extend its intra-day recovery to around 1.25% on the session, narrowing the gap to the initial resistance zone at 144.40, last Thursday’s high and the 20-day EMA. Above here, the 50-day EMA currently intersects at 145.73.
- Overall, USDJPY maintains a softer tone and the pair has traded to a fresh short-term cycle low today. Support at 142.36 has been pierced, and a clear break of it would open 139.89, the Apr 22 low and the next key support. We wrote a detailed technical note on the significance of this medium-term pivot: https://mni.marketnews.com/3HsU8xu
- Speaking this morning at the 2025 BOJ-IMES Conference, Governor Ueda said “we have managed to de-anchor expectations from zero, but have yet to re-anchor them at 2%. This is why we are still maintaining an accommodative policy stance." Emphasising this caution, Finance Minister Katsunobu Kato indicated the MOF will monitor developments in the bond market, including super-long bonds, and maintain close communication with market participants to ensure appropriate bond management.
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Apr-25 20:32
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Apr-25 20:25
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
Apr-25 20:22
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
