Japan repatriation talk sparks JGB rally
Japan’s Finance Minister suggested the government would encourage pension funds, including the largest public fund, to invest more domestically triggering a sharp reversal of the “Sell Japan” trade. The 10y JGB rallied 11.5bp to 2.76% and the 20y 11.5bp to 3.75%, led by short covering in the long end. Large repatriation flows look unlikely from portfolio-weight changes alone, but the speculation may linger, keeping the long end supported near term.
US rates twist-flattened as near-term hike premium rebuilt (2y +3.1bp; 30y -0.6bp) with no single data catalyst, while EGBs and gilts extended their bull-flattening.
DXY firmed 0.1% to 101.11 in a mixed G10 session. JPY outperformed (USD/JPY -0.4% to ~161.97) as repatriation hopes trumped higher US front-end yields. CAD/USD gained 0.1% on a jobs beat (+18.2k vs 10k expected), though gains were all part-time. NOK/USD lagged (-0.6%) on softer inflation and weaker oil.
The S&P 500 rose 0.4% and the Nikkei 1.2%, with the VIX down 5.1% to 15.03 as focus shifts to US CPI and bank earnings.
In FX, AUD/USD rose 0.2%, while NZD/USD gained 0.14% overnight on improved Asia risk sentiment.
In Asia, USD/SGD was little changed, while USD/CNH fell 0.2%.
Pension pivot pounds USD/JPY
Last Friday, the Japan finance minister said the government wants pension funds, including the ¥293trn state fund, to lift their holdings of Japanese assets substantially. No numbers, no timeline. However, the fund splits its money roughly evenly between assets at home and abroad, so even a modest tilt homeward implies an enormous flow. That is what the market has chosen to price. The bond market said it loudest. Ten-year yields fell 10bp and the 20-year dropped more than 11bp, the steepest move in a month.
We read the whole thing as damage control: yields had run to multi-decade highs on worries about loose spending and political pressure on the central bank, and the yen sat at a 40-year low.
USD/JPY trades about 0.5% shy of the 162.84 peak set on 1 July. We look to the 21-day EMA of 161.56, then 50-day EMA at 160.57, key psychological handle of 160.00, then the 100-day EMA at 159.28 as the next key levels of support.
Inflation prints and China’s growth checkpoint
The week’s marquee release is Tuesday’s US CPI report, with headline expected to fall to 3.9% from 4.2% and core steady at 2.9%. Wednesday’s PPI follows, where final demand is seen flat month-on-month after May’s 1.1% surge. Together these will shape expectations for the Fed’s next move.
Tuesday’s China trade figures open the sequence, with exports and imports both expected to cool from double-digit gains. Wednesday brings the second-quarter GDP print, forecast at 4.5% year-on-year against 5.0% previously, alongside retail sales, industrial production and fixed asset investment. Singapore’s advance second-quarter GDP on Tuesday offers an early read on regional trade momentum.
The Bank of Canada’s Wednesday decision is the week’s sole policy event, with consensus looking for a hold at 2.3%. Any hawkish or dovish tilt in the accompanying language could set the tone for the Canadian dollar.
Thursday’s US retail sales are expected to slow to 0.3%, with the Philadelphia Fed survey and jobless claims alongside. Singapore’s non-oil domestic exports and final Eurozone inflation land Friday, before the week closes on Saturday with the University of Michigan sentiment reading.
Kiwi near overbought level
Table: Currency trends, trading ranges & technical indicators
Key global risk events
Calendar: July 13-17
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
