JAPAN: USDJPY Hits New Cycle High as Katayama Seems Unbothered on JPY Weakness
- "*KATAYAMA: WILL MAKE TECHNICAL TWEAK TO BOJ-GOVT ACCORD" - BBG
- "*KATAYAMA: WON'T CHANGE OVERALL DIRECTION IN JOINT ACCORD"
- "*KATAYAMA: DIDN'T SPECIFICALLY TALK ABOUT FX WITH UEDA" - BBG
USDJPY rises through yesterday's highs to hit a new cycle high on these Katayama comments - as noted just above no new news stemming from the headline but the market is be noticing that the finance minister "did not specifically talk about FX", possibly suggesting JPY weakness is not the highest priority - even with USDJPY, EURJPY at cycle highs.
- Meanwhile JGB futures are unreactive to the headlines, -8 vs. settlement levels as wider core global FI markets tick away from session highs.
- We noted earlier this week that the JPY has proved immune to the recent weakness for major equity benchmarks as well as the more forceful verbal warnings from Japanese officials on one-sided adjustments for the currency.
- The next level on the topside for USDJPY is at 155.89, the Feb 3 high, however, more meaningful resistance is at 156.75, the Jan 23 high. For EURJPY, targets rely on technical projections, with 180.37, 181.01 and 181.70 the next levels of note based on the Jul 31 - Sep 29 - Oct 2 price swing.
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BONDS: 10-year Gilt/Bund Spread Narrows 1.5bps, Sep 24 Support In View
The 10-year Gilt/Bund spread is 1.5bps narrower at ~193.5bps. Initial support is the Sep 24 close around 192bps, clearance of which would bring the spread to its tightest since mid-August and expose the August 1 close at 184.5bps. Aggregate moves have been relatively contained this morning, with the UK and Eurozone data calendar picking up later in the week.
- There are a few drivers of Gilt outperformance versus Bunds over the past week:
- On the monetary policy/data side, last week’s UK labour market data was soft, while Governor Bailey retained optionality for a Q4 rate cut.
- On the fiscal side, there are some expectations that the UK’s "fiscal black hole" won’t be quite as large as was previously feared, alongside speculation that Chancellor Reeves may increase fiscal headroom above the c. GBP10bln seen in the last two fiscal events.
- Fiscal policy remains a key focus for the Gilt market ahead of the Nov 26th budget. The main fiscal headlines from the weekend have suggested that VAT may be removed from energy bills.
- UK yields are little changed across the curve, while German yields are up to 1.5bps higher with a light bear steepening bias noted.
- In futures, Bunds are -14 ticks at 129.83, while Gilts are +1 at 92.47.
- Slovakia and the EU have sold bonds this morning, while books for Italy’s latest retail offering have opened. Estonia has issued a mandate for a 2034 bond tap.
- This week’s calendar includes UK public sector finance (Tues), CPI (Weds) and flash PMI (Fri) data. In the Eurozone, Friday’s flash PMIs highlight.
Figure 1: 10-year Gilt/Bund Spread (Source; Bloomberg Finance L.P)
OPTIONS: Expiries for Oct20 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.1515(E1.0bln), $1.1540-50(E1.2bln), $1.1640-55(E1.3bln), $1.1710-30(E1.4bln),$1.1790-00(E1.0bln)
- USD/JPY: Y150.00-05($2.0bln), Y150.25($600mln), Y154.80($2.0bln)
- EUR/JPY: Y178.00(E530mln)
- AUD/USD: $0.6670(A$589mln)
- USD/CAD: C$1.4000($718mln)
EU-BOND AUCTION RESULTS: EU-bond Results
| 2.625% Jul-28 EU-bond | 2.75% Feb-33 Green EU-bond | 3.75% Oct-45 EU-bond | |
| ISIN | EU000A4D5QM6 | EU000A3K4DW8 | EU000A4EA8Y7 |
| Amount | E2.259bln | E1.798bln | E1.335bln |
| Previous | E1.798bln | E1.85bln | E4bln |
| Avg yield | 2.128% | 2.680% | 3.71% |
| Previous | 2.186% | 2.748% | 3.80% |
| Bid-to-cover | 1.15x | 1.15x | 1.25x |
| Previous | 1.59x | 1.26x | |
| Avg Price | 101.284 | 100.452 | 100.564 |
| Low Price | 101.260 | 100.410 | 100.490 |
| Pre-auction mid | 101.262 | 100.386 | 100.425 |
| Prev avg price | 101.247 | 100.008 | 99.380 |
| Prev low price | 101.230 | 99.980 | |
| Prev mid-price | 101.212 | 99.923 | |
| Previous date | 14-Jul-25 | 02-Jun-25 | 08-Jul-25 |
