JPY: USD/JPY - In A Range, JPY Longs being Challenged in The Crosses
The overnight range was 143.65 - 144.88, Asia is currently trading around 144.60. USD/JPY has ignored the broad USD weakness as JPY longs are pared back in the crosses in response to US Equities moving higher and now eyeing all time highs.
- MNI - The BoJ is expected to keep its policy rate unchanged at 0.50% at its June 16-17 meeting. The key area of interest will be Governor Kazuo Ueda's post-meeting press conference. Investors will closely examine his comments for any signals on the timing and likelihood of future rate hikes. The second area of market focus is on the BoJ's JGB purchase program. Market expectations suggest a slower pace of reductions during fiscal year 2026. If the BoJ chooses to maintain the current pace of 400 billion reductions per quarter in FY2026, this would be interpreted as a mildly hawkish move.
- (Bloomberg) - “The recent softening of the yen could already partly reflect expectations for a cautious policy update from the BOJ alongside negative spill-overs for Japan from the Middle East conflict,” wrote Lee Hardman, senior currency analyst at MUFG. “While the BOJ is expected to leave their policy rate unchanged tomorrow, there is a strong expectation amongst market participants heading into the meeting that they will adjust their plans for QT,” he said."
- USD/JPY continues to hold above its support back towards the 142.00 area, with oil surging again and US yields bouncing this pair has drifted back to the middle of its recent range.
- Price is back in its recent 142.00 - 147.00 range and will need a break either side of that to get a clearer direction. The large interest around 145.00 expired overnight.
- The market still seems confident of a move lower in USD/JPY but with positioning quite large now we have seen the risk of pullbacks increase. A break above 147.00 would be needed to challenge the conviction of any shorts.
- Options : Close significant option expiries for NY cut, based on DTCC data: 143.25.($350m). Upcoming Close Strikes : 146.00($1.85b June 20).
- CFTC data shows Asset managers maintained their already extensive JPY longs, leveraged funds looked to have pared back their own longs once more.
Data/Event : BOJ
Fig 1 : USD/JPY Spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
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RATINGS: Moody's Downgrades US's AAA Rating As Deficits Seen Ballooning
Moody's has downgraded the US's long-term credit rating to Aa1 trom Aaa. The move may not have been fully expected today. But it was the last holdout among they S&P and Fitch to demote the USA from the top rating, and they placed negative outlook on the US last year (now stable). Fiscal deterioration, both past and anticipated as Congress wrangles with the Republican fiscal bill, is cited as the key factor. From the release (link):
- “While we recognize the US’ significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics."
- "This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns...We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration."
- "If the 2017 Tax Cuts and Jobs Act is extended, which is our base case, it will add around $4 trillion to the federal fiscal primary (excluding interest payments) deficit over the next decade. As a result, we expect federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation."
- "We anticipate that the federal debt burden will rise to about 134% of GDP by 2035, compared to 98% in 2024."
- "Federal interest payments are likely to absorb around 30% of revenue by 2035, up from about 18% in 2024 and 9% in 2021. The US general government interest burden, which takes into account federal, state and local debt, absorbed 12% of revenue in 2024, compared to 1.6% for Aaa-rated sovereigns."
US FISCAL: "Extraordinary Measures" Continue To Dwindle Amid Debt Impasse
The "extraordinary measures" available to Treasury to stave off a debt default were down to $82B as of May 14, per a Treasury Department release today.
- That compares unfavorably with a high of $335B in January when the debt limit impasse began. Combined with $562B in Treasury cash on hand, though, after April's large tax intakes, that makes for around $644B in available resources before the "x-date" is reached.
- Resources are gradually being eroded since reaching nearly $800B in mid-April.
- Per Tsy Sec Bessent's letter to Congress last week, "after reviewing receipts from the recent April tax filing season, there is a reasonable probability that the federal government's cash and extraordinary measures will be exhausted in August while Congress is scheduled to be in recess. Therefore, I respectfully urge Congress to increase or suspend the debt limit by mid-July, before its scheduled break, to protect the full faith and credit of the United States."
CANADA DATA: Sales Activity Points To Potential Marking Up Of GDP Ests
There was mixed news on the housing and wholesale/manufacturing sales fronts this week, which on net look to slightly upwardly bias Q1 GDP estimates, pending next week's retail sales reading.
Housing starts blew through expectations at 278.6k in April (226.2k expected, 214.2k prior). This came after building permits fell a worse-than-expected 4.1% M/M in March as reported Wednesday.
- Meanwhile, he Canadian Real Estate Association reported existing home says April sales unexpectedly contracted -0.1% M/M (+1.0% expected, -4.8% prior). Sales are now down 9.8% Y/Y, while prices fell 1.2% M/M (3.6% Y/Y on the price index). (Link)
- Overall, confidence appears subdued, which is likely to translate into subdued activity.
On the sales front, March data was soft but positive versus expectations and could add a slight upward drift to Q1 GDP expectations.
- Manufacturing sales were less negative than expected at -1.4% M/M (-1.9% expected/flash estimate, -0.2% prior rev up 0.4pp). The decline was led by primary metals -6.5%, an area hit by U.S. tariffs, and oil -4.2%. Overall Q1 factory sales grew +1.6% vs prior +1.1%.(Link)
- Wholesales ex-petroleum and grains rose 0.2% in March, vs the advance estimate / consensus -0.3%. Sales volumes fell 0.3%. Overall Q1 wholesales rose 2.5%, led by machinery/equipment and autos/parts.
