US TSYS: Yields Edge Higher

Indonesian headline CPI jumped to 2.4% y/y in July from 1.9%, its highest in just over a year due to food prices. Core moderated 0.1.pp to 2.3% from 2.4%. It appears to have peaked around 2.5% in April. With inflation around the mid-point of BI’s band and signs of softer consumption, JP Morgan expects another 50bp of easing in H2 2025, dependent on rupiah stability. 

• JP Morgan continues “to see core inflation averaging 2.3%oya this year, but now see it dipping below 2%oya in 4Q25 — below the midpoint of BI’s 1.5-3.5% target range. Together with consecutive below-trend GDP prints — we expect 2Q growth to print at 4.9%oya — we think this should lead BI to cut by 25bp at alternate meetings in September and December, but potential easing remains tightly tied to IDR stability”.
• “Excluding volatile food and energy prices, however, the momentum on core CPI has eased sharply over the last few months, sliding from over a 3%ar to 2%ar in the July inflation report. Within the core basket, this easing in momentum is most clearly evident in recreation and food and accommodation services, which signals a softness in underlying private consumption, in our view.”
• “In sequential terms, headline CPI rose 0.3%m/m, sa (0.252% to higher precision) while core CPI posted another soft 0.1%m/m, sa gain. Despite the firm July gain, distortions from recent food price swings and electricity tariff adjustments nonetheless pulled down the 3m/3m run-rate on headline CPI from an elevated 8%ar to 4.5%ar.”
• “The momentum on core CPI also softened to a 2%ar after averaging close to a 3%ar in 1H25, pointing to benign underlying inflationary pressures and, likely, soft domestic demand.”

The Equity market correction accelerated lower on Friday in response to the NFP data and the implications it has for growth going forward. This morning has seen US futures open a little higher, pulling back a little from Friday’s lows, ESU5 +0.37%, NQU5 +0.40%. The Yen got the double whammy of the move in US rates and as a safe haven as risk wobbled off its highs. Should we see a deeper correction lower in risk I suspect the JPY will continue to outperform in the crosses.

• EUR/JPY - Friday night range 170.29 - 172.23, Asia is trading around 171.05. This pair had a strong bounce last week off its support around 170.00 as JPY longs got squeezed out, but this potential correction lower in risk could add to the pair's headwinds. Watch for any signs of topping out should risk actually start correcting lower, a move sub 169.50/170.00 could signal a deeper pullback is on the cards.
• GBP/JPY - Friday night 195.34 - 198.99, Asia trades around 196.20. The pair sliced through its support around 197.00 and has moved very quickly towards the 195.00 support. The move higher looks to have stalled for now and a sustained break below 195.00 would turn momentum lower again. A bounce back towards 197.00/197.50 should now see sellers.
• NZD/JPY - Friday night range 87.06 - 88.54, Asia is currently dealing 87.40. The pair failed with multiple attempts to break above 89.00. A top looks to potentially be in place now and a break sub 96.50 could signal a deeper correction, expect sellers on any back towards 88.00 initially.
• CNH/JPY - Friday night range 20.4782 - 20.8750, Asia is currently trading around 20.5600. This pair broke through its 20.7000/20.8000 resistance area last week but the price action was pretty ugly as the move higher was rejected in what looks a key day reversal. Initial support is around the 20.40 area but a sustained break back below 2.3000 would begin to turn momentum lower again.

Fig 1 : GBP/JPY Daily Chart

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

JGB futures sit comfortably earlier highs. We are 138.67, +.59 at the lunchtime break. US Tsy futures are now comfortably lower for the session, unwinding the early bounce. There has also been flows going through in the TSY futures space, which may be contributing to the recent softness. This obviously follows the very sharp rallies we saw on Friday post the US data outcomes.

• For cash JGB yields, we are still mostly down in yield terms, but away from worst levels for the session. The 10yr is back around 1.51%. The 3-7yr tenors are -6 to -7bps down in yield terms. Swap rates are little changed, except for a firmer back end yield backdrop.
• News flow has seen focus on the fiscal outlook, with the following headlines crossing. "*ISHIBA: IMPLEMENTATION OF SUBSIDIES DEPENDS ON TALKS W PARTIES" - BBG, along with "*CDP'S NODA: TO DISCUSS SALES TAX CUT W OTHER OPPOSITION PARTIES, and {JN} "*ISHIBA: MUST MULL HOW SALES TAX CUT MAY IMPACT YIELDS, TRUST" - BBG.
• The LDP coalition has not been in favour of cutting the sales tax, but it is likely to remain on the agenda to some degree.
• Note tomorrow we have a 10yr bond auction.